EU states reach deal to ease banks' bad loan recovery

BRUSSELS (Reuters) – European Union governments reached a deal on Wednesday on new rules to facilitate banks’ recovery of assets from borrowers who default, an EU statement said.

The new rules, which need to be backed by the European Parliament, would introduce a mechanism to favor out-of-court procedures on foreclosures, speeding up banks’ recovery of collateral used by borrowers to obtain loans when they fall behind on their repayment schedule.

The EU’s stock of non-performing loans is at its lowest since the financial crisis but remains high in some countries, including Greece, Cyprus, Portugal and Italy, tying up capital and making it more difficult for banks to lend to firms and households.

The mechanism, envisaged only for business loans and not consumer loans, is expected to reduce the losses banks incur when lenders offload non-performing loans. It would, however, increase the burden on borrowers.

The rules would apply to new loans and would have to be agreed between a bank and a borrower upfront, normally when the loan is granted.

“It is important to give legal tools to banks to recover the value of failing loans quickly without having to go to court, while ensuring a high level of protection for borrowers,” Finland’s finance minister Mika Lintila said in a statement.

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