(Finance) – “Considering the significant efforts undertaken over the last ten years to reduce the level of non-performing loans on banks’ balance sheets, the national initiatives that could undermine progress accomplished are cause for concern from the point of view of European banking supervision”. He stated this Andrea EnriaPresident of the Supervisory Board of the European Central Bank (ECB), in response to questions from an MEP.
“Concrete initiatives in this direction include proposals under discussion in Italy and Cyprus – we read in the document published on the ECB website – In Italy, one proposal would give some borrowers the ability to buy back their bad loans, even if these NPLs have already been sold to third parties. L’retroactive effect of such provisions could compromising the correct functioning of secondary markets of NPLs”.
“Similarly, the recent legislative proposals of Cyprus – which would allow distressed borrowers undergoing foreclosure proceedings to go to court and obtain a stay order until the dispute is resolved – could lead to a greater legal uncertainty and to undue delays in the resolution of NPLs related to certain residential mortgages,” it added.
“The ECB – said Enria – recognizes that the NPL resolution process can have social implications and, therefore, recognizes theimportance of developing measures to support borrowers in difficulty. In our view, policymakers have a variety of tools at their disposal to achieve this without compromising the NPL resolution process. For example, fiscal support measures, such as debt service support for vulnerable households, can also be part of an NPL resolution strategy to find balanced and sustainable solutions for both borrowers and lenders.”