October 9, 2017 / 1:11 PM / a year ago

Italy's Padoan has doubts over way ECB is addressing NPL problem

LUXEMBOURG (Reuters) - Italy has doubts whether the European Central Bank’s approach to tackling non-performing loans in the euro zone is correct, and will discuss it in the coming weeks, Finance Minister Pier Carlo Padoan said on Monday.

Italy's Finance Minister Pier Carlo Padoan attends an European Union finance ministers meeting in Brussels, Belgium, July 11, 2017. REUTERS/Francois Lenoir

The European Central Bank, which is in charge of supervising euro zone banks, will ask them from next year to set aside more cash to cover newly classified bad loans and may also present additional measures to tackle the sector’s huge stock of bad debt.

“It’s clear in Italy there is a problem in terms of reducing bank bad loans,” Padoan told reports on entering a meeting of euro zone finance ministers.

“I have doubts about the ways and content of the communication put under discussion by the Single Supervisory Mechanism (SSM),” he said. “We will discuss it in the coming weeks.”

Soured loans are clogging up bank balance sheets and holding back lending, a headache for the ECB as weak credit growth offsets some of the stimulus it is trying to provide through low interest rates.

Starting Jan. 1, banks will have at most two years to set aside funds to cover 100 percent of their newly classified non-performing unsecured debt and seven years to cover all secured bad debt, it said in a new proposal, confirming an earlier Reuters report.

Reporting By Francesco Guarascio, writing by Jan Strupczewski

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