ECB: Deadline for banks to cover 100% of new "red loans"

With non-performing loans being one of the most important problems for the European financial system, especially in Greece, Italy and Cyprus, the ECB is expected to ask banks to put aside funds to cover 100% of the red loans.

As the Reuters agency transmits, the European Central Bank is preparing to issue a directive, which would recommend, at the level of good practice, the formation of a provision equivalent to 100% of the value of the loan.

In particular, for loans without collateral, banks are required to make a provision equal to the value of the loan within two years, while for collateral they are defined as a time horizon of seven years.

The deadline for making forecasts will only concern loans that become problematic after 1 January 2018 and not the existing red loans.

Non-performing loans burden banks' balance sheets and prevent lending, creating a problem for the ECB, as weak credit expansion mitigates the impact of monetary stimulus on low interest rates, the agency notes.

However, the measures will not affect nearly 1 trillion euros bad loans already in banks' books. They have the goal, as reported by the agency, to prevent the accumulation of new "red" loans.