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European Central Bank probes euro zone banks' bad loans

BBR Staff Writer Published 20 January 2016

The European Central Bank (ECB) has reportedly launched an investigation into euro zone banks to assess how the banks are managing bad loan holdings.

Euro

ECB's probe comes amid mounting losses faced by the banks due to increasing bad loans, totaling nearly $217bn.

The review would be carried out by ECB's Single Supervisory Mechanism to evaluate non-performing loans held by various banks including Banco Popolare, Banca Popolare di Milano Scarl and Banca Carige in Italy, Bloomberg reported.

It will also look into bad loan portfolios of UniCredit and Banca Monte dei Paschi di Siena.

ECB would provide certain guidelines for banks on how to deal with bad loans. It will recommend banks to use different business models in different regions, Reuters reported.

ECB's supervisory teams will be using these guidelines in formulating recommendations for the banks.

A few important recommendations might include increasing workforce to tackle non-performing loans or altering internal practices, relooking into the value of soured loans, reported Reuters.

The burden of bad loans in countries including Greece, Portugal, Spain and Italy is impacting economic recovery.

The Wall Street Journal reported that gross bad loans of Italian banks represented 10.4% of total loans in November last year.


Image: ECB's probe comes amid mounting losses faced by the banks due to increasing bad loans. Photo: courtesy of m_bartosch / FreeDigitalPhotos.net.