The European Parliament has adopted, on Thursday, new EU rules for standard minimum coverage of bad loans.

Measures to mitigate the risk of possible, future, non-performing loans (NPLs) accumulating due to the recessions brought about by the 2008 financial crisis were approved by the Parliament, with 426 votes to 151 and 22 abstentions.

In an official statement, the EU explains these measures «will help strengthen the Banking Union, preserve financial stability as well as banks’ profitability and encourage lending, which create jobs and growth across Europe».

NPLs are loans that are either more than 90 days overdue or are unlikely to be fully repaid. To complement the existing rules relating to own-funds, Parliament voted to introduce common minimum loss coverage levels.

So, adds the same source, «each bank will have to set an amount of money aside, to cover losses caused by future loans that could become non-performing. Coverage requirements for banks will, however, vary, depending on whether NPLs are secured by eligible credit protection i.e. collateral or unsecured. The kind of collateral being used, such as real estate, will be also taken into account».

The new rules, which have already been informally agreed with Council, will only apply to NPLs taken out after the entry into force of the Regulation.

Original Story:European Sting | European Union
Photo: FreeImages.com/Sarah Cuypers
Edition:Prime Yield