August 29, 2018 / 2:55 PM / 23 days ago

Germany backs Ireland's Donnery as ECB bank watchdog chief - source

FRANKFURT (Reuters) - Germany is backing Irishwoman Sharon Donnery as the next chief of the European Central Bank’s banking watchdog, hoping she will be tough on tackling bad loans in countries such as Italy, a source familiar with the Berlin government’s thinking said.

FILE PHOTO: Deputy Governor Sharon Donnery and Governor Philip R. Lane (R) speak at the publication of the Central Bank of Ireland'Ss review of residential mortgage lending requirements in Dublin, Ireland November 23, 2016. REUTERS/Clodagh Kilcoyne/File Photo

The ECB is looking for a banking expert to replace the head of the Single Supervisory Mechanism (SSM), Daniele Nouy, when her term expires at the end of this year and to oversee a sector weighed down by bad loans and shrinking profit margins.

Donnery, the deputy governor of the Central Bank of Ireland, already leads an ECB taskforce charged with bringing down the euro zone’s trillion euro problem of soured credit inherited from the financial crisis and concentrated in southern Europe.

Last week she became the first person to declare her candidacy to take over at the SSM on Jan. 1, 2019.

Berlin is hoping to rally other countries behind Donnery to rival likely Italian candidates such as Andrea Enria, chairman of the European Banking Authority, or ECB supervisor Ignazio Angeloni, the source said.

A spokesman for the German finance minister declined to comment. A spokesperson for Chancellor Angela Merkel did not immediately offer a comment.

German supervisors have called for rigour on unpaid bank loans. But Italy, where the problem is larger because the government did not bail out its banks during the financial crisis, has obtained some leniency, to the dismay of some in the bloc’s core.

Supporting Donnery, rather than pushing for its own candidate, would make it easier for Germany to aim for higher profile roles due to come up in the European Union over the next year, including the heads of the European Commission and the ECB itself, the source added.

BROADER GAME OF CHESS

Huge levels of bad debt at Irish banks triggered a crisis which forced Dublin to take an international bailout in 2010. However, since then Irish authorities have won praise for tackling the problem.

Since 2013 - the year Donnery was first promoted to a senior position at the central bank - bad debts have fallen from 32 percent of Irish banks’ total loans to around 14 percent.

In addition to her credentials as a banking watchdog, Donnery was also seen as fitting well into the European Parliament’s push to have more women at the helm of EU institutions, the source said.

While the top SSM position is already held by a woman, a Donnery appointment would at least maintain the status quo, whereas all the other names floated so far as possible candidates are those of men.

With just 27 percent of women in management positions, the ECB has admitted it is falling short of its own gender target.

Donnery and France’s top financial markets regulator Robert Ophele are the only candidates to have made their application public so far.

Media reports have also mentioned Enria, Angeloni and former Dutch supervisor Jan Sijbrand as among potential candidates.

The head of the SSM is proposed by the ECB after a competitive application process, but the appointment is made by the heads of EU governments as part of a broader chess game to distribute top roles among countries.

According to some insiders, Donnery’s appointment would decrease the chances of Irish central bank governor Philip Lane becoming the ECB’s next chief economist when Peter Praet’s mandate expires at the end of May 2019.

Additional reporting by Tom Koerkemeier in Berlin, editing by Silvia Aloisi and David Stamp

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