European Central Bank lets banks set NPL targets

The European Central Bank (ECB) will allow European banks to set their own targets for cutting the €900 billion of bad loans left over from the financial crisis. New guidance will require banks to set their own targets for the levels on non-performing loans (NPL), with only “significant” deviations triggering regulatory action. Sharon Donnery, the Irish Deputy Governor who chaired the ECB’s working group on bad loans, said: “If there were significant gaps, then obviously we would be discussing with the bank how they would move close toward compliance with the guidance, particularly the time frame over which that was going to happen.”

Banks in weak economies such as Greece, Portugal and Italy are still struggling under the burden of unpaid loans extended before the crisis, which reduce their ability to lend and undermines investor confidence.