EU Aims to Loosen Draft Rules for Banks' Bad Debt

Forex News

EU diplomats agreed to soften draft rules on the money banks should set aside to cover potential losses on new loans. Under the proposal, banks will have more time to set aside money to cover potential losses from new loans. Non-performing loans make up an average of just 3.6 percent of total lending at EU banks.

Despite the deal softens legislative changes proposed in March by the executive European Commission, it still needs approval of the EU parliament. The entry into force of the new rules will depend on when a deal is reached with EU lawmakers on the proposal.

The move is aimed at helping countries such as Italy that have huge piles of bad debt. A decade on from the 2008 financial crisis, bad loans are still curbing many Eurozone banks' ability to lend and so support economic growth.

The plan also confirms that banks will not be subject to new general requirements to cover the stock of existing bad loans. According to the European Banking Authority's data, Eurozone banks still hold 731 billion euros ($829 billion) of debt they might not be able to recover.