MNI: EU Authorities Set For Renewed Push On Banks' NPL Issue

--Several Legal Proposals Expected From EC On Wednesday

--SSM expected To Unveil Pillar 2 Guidelines On Thursday

by Jean Comte

     BRUSSELS (MNI) - The European Commission is set to unveil a package this

week to address the issue of bank non-performing loans, in an attempt to hasten

the cleaning of banks balance sheets.

     Reducing exposure of non-performing loans has been a priority for the

European Union since last April, when the topic became a central item of a

finance ministers meeting in Malta. But progress has been slow, with the

bloc-wide NPL ratio falling only from 5.4% to 4.4%.

     The upcoming bundle of measures is expected to include 3 legal proposals:

on secondary markets, prudential backstop and protection of secured creditors.

     The secondary markets proposal has been long awaited by European financial

markets. The goal is to set a number of minimal standards to open the EU market

-- which is currently occupied mostly by American hedge funds or assets

managers.

     EU banks, on the other hand, are resistant to the idea. Banking lobbyist

sources tell MNI that they fear this framework will push them to to dispose of

loans at discounted prices -- especially with the prudential 'backstop', which

is a minimum cover for losses on non-performing exposures.

     The Commission will also publish guidelines to help member states set up

asset management companies -- including best practice advice, and advice to

avoid state-aid related problems.

     --SSM MOVE

     The Commission's move will be followed by an announcement from the Single

Supervision Mechanism on Thursday, one source told MNI, saying the SSM proposal

will clearly be focused on pillar 2, whereas the Commission 'backstop' proposal

will be on pillar 1

     This set-up aims at avoiding a backlash from the two EU co-legislators --

the European Parliament and the Council of the EU, as happened last November.

The SSM said then that it will ask for 100% provisioning for each new loan. 

     That move was immediately criticized by both the legal services of the

Parliament and of the Council of the EU, according to documents obtained by MNI.

Both legal services said that such horizontal requirements would be a matter for

the co-legislators, not for the SSM acting on its own.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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