The management of “red” or non-performing loans (NPLs) that burden the balance sheets of Eurozone banks is the most important issue confronting the banking sector, European Central Bank President Mario Draghi told the second ECB forum regarding banking oversight.
“We need a joint effort by banks, supervising and regulative agencies, and national authorities to handle the issue in a coordinated manner, firstly by creating an environment that will make possible the effective management and sale of NPLs,” Draghi said.
Draghi said that strict, uniform supervision has led to higher levels of bank capital and overall improved endurance of the sector.
For larger banks the relationship between credit default swaps and insurance against state default is today much smaller than at the zenith of the Eurozone crisis, Draghi said.
“European oversight and European monetary policy have proven to complement one another. It is an approach that confirms the synergies that can emerge when correct policies are coordinated at the Eurozone level,” the ECB chief said.
The ECB is seeking solutions on how to resolve nearly 900 billion euros in non-performing loans that burden the Eurozone’s banking sector, according to the ECB’s Daniele Nuy. “For old NPLs, the situation is quite differentiated and so there should be ad hoc evaluation and resolution,” she noted.
Nuy said the ECB is working with all banks with high NPL levels, and that they have submitted their plans to handle the situation. “We will review these plans to ensure that they are sufficiently ambitious and credible. To be credible, they must be realistic. They cannot promise miracles,” she said.
