ECB Gives Banks Further Virus Relief With Break on Bad Loans (1)

The European Central Bank announced further relief to help lenders weather the fallout from the coronavirus by offering flexibility on the treatment of non-performing loans as it seeks to shore up the continent’s financial system.

Banks can fully benefit from guarantees and payment holidays put in place by public authorities to counter the current crisis, the ECB said on Friday in Frankfurt. It also recommended they apply new accounting standards in a way that avoids excessive provisioning for losses.

Governments and regulators are taking unprecedented measures to avoid that the temporary lockdowns required to slow the spread of the virus disrupt the economy more permanently. Germany and France alone have pledged almost $1 trillion combined for guarantees and loans. The ECB is also allowing banks to put some of their financial cushions to work, a measure it said would free up an estimated 120 billion euros ($129 billion) in capital.

“The ECB supports all initiatives aimed at providing sustainable solutions to temporarily distressed debtors in the context of the current outbreak,” it said in a statement. The measure should help banks “fulfill their role to fund households and corporations amid the coronavirus-related economic shock to the global economy.”

Regulators Weigh Measures to Give Europe’s Banks Bad Loan Relief

Bloomberg reported on Wednesday that European regulators are considering giving the continent’s lenders more time before they have to set aside billions of euros for bad loans.

Other authorities have issued similar statements to limit the damage on balance sheets. The Bank of England said on Friday banks should be flexible in estimating and providing for loan losses under the so-called IFRS9 accounting standards, taking account of public support for borrowers. U.S. Federal Deposit Insurance Corp. Chairman Jelena McWilliams wrote to the rule-setting Financial Accounting Standards Board on Thursday to say the current method to account for expected credit losses should be delayed.

The most recent measures are part of a suite of emergency ECB actions to try to contain the economic fallout of the pandemic. Last week it announced measures to support lending to small and medium-sized enterprises and a special 120 billion-euro bond buying plan. This week, it announced another bond plan, worth 750 billion euros.

That Pandemic Emergency Purchase Program will begin soon, once officials have finalized the details of its implementation, according to people familiar with the matter.

Despite the program not yet being under way, bonds have surged since the announcement. Yields in Italy, the worst-hit by the virus, and Greece, which will be included in the ECB’s quantitative easing for the first time, have seen especially steep drops.

The buying of Greek debt hasn’t yet started, the people said, asking not to be identified as such market operations are confidential. The Bank of Italy said purchases of Italian debt are under way, but under existing programs. An ECB spokesman declined to comment.

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--With assistance from Paul Gordon, John Ainger and Alessandra Migliaccio.

To contact the reporters on this story:
Alexander Weber in Brussels at aweber45@bloomberg.net;
Nicholas Comfort in Frankfurt at ncomfort1@bloomberg.net;
John Ainger in Brussels at jainger@bloomberg.net

To contact the editors responsible for this story:
Dale Crofts at dcrofts@bloomberg.net;
Paul Gordon at pgordon6@bloomberg.net

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