The European Central Bank (ECB) must take stricter and faster action against banks with too many junk loans. This is the conclusion of the European Court of Auditors in an extensive investigation into the functioning of the central supervisor. The Court of Auditors is generally pleased with the supervision of European banks. But the ECB does measure with double standards in certain cases, is the opinion.
This happens when banks have too many loans on their balance sheets that have not been repaid for more than ninety days, so-called non-performing loans. A bank with too many defaulters can sink through its buffers and fall over if those loans have to be written off. “The ECB is doing a good job. But we see that the ECB could have acted more rigorously with some risky banks,” says Member of the Court of Auditors Mihails Kozlovs.
One of the most important tasks given to the ECB when it took over the supervision of large banks in euro countries from national supervisors at the end of 2014 was to clean up the large number of junk loans at banks. At that time, an average of more than 7 percent of bank balance sheets consisted of this type of credit.
This percentage was only reduced to less than 2 last year. According to the European Court of Auditors, this took too long, mainly because the ECB approached one bank differently than the other.
For example, banks from the south of Europe, where sometimes a quarter of the balance sheet consisted of loans from defaulters, were given longer to solve problems than banks with few defaulters. And after the outbreak of the corona crisis, banks had to wait more than a year for the ECB’s assessment of the risks in their loan portfolios.
And that took too long, the Court of Audit believes, because the situation at a bank may have changed in the meantime. According to the Court of Auditors, the fact that it took so long is partly due to a shortage of staff at the ECB for supervisory tasks. It would also not work efficiently enough.
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