France Pushing to Relax Bad-Loan Rules to Help Banks in Turmoil

(Bloomberg) --

France is pushing regulators to go easy on banks whose customers face difficulties repaying loans after the coronavirus outbreak curbed economic activity and disrupted markets.

Authorities should relax rules on the classification of nonperforming exposures so that banks get more flexibility in dealing with struggling businesses, according to French Finance Minster Bruno Le Maire. Companies need continued access to credit to “avoid a spiral” after the market turmoil caused by the spreading disease and collapse in oil prices, he said.

As things stand, banks need to classify a loan as nonperforming when the borrower fails to pay back agreed installments or interest for more than 90 days. That means they have to start setting aside more capital for these exposures, reducing the scope to give out new loans. Italian banks have also asked for clemency on nonperforming loans because of the outbreak.

“If we apply EU prudential rules too strictly, that means it will weigh on the balance sheets of banks and so banks will be nervous to delay loan maturities,” Le Maire told reporters in Paris. “Markets are reeling, notably bank shares, which is another reason to show flexibility on this.”

Euro-area officials are also discussing the possibility of delaying this year’s bank stress tests so that supervisors don’t have to deal with outdated scenarios, two people familiar with the matter said, declining to be identified because the deliberations are private. The results of the exercise were meant to be published by the end of July.

Bank shares were among the worst performing in Europe on Monday, with the Euro STOXX Banks Index falling as much as 13%, compared to a 9% decline in the broader Euro STOXX Index.

--With assistance from Silla Brush and Nicholas Comfort.

To contact the reporters on this story: William Horobin in Paris at whorobin@bloomberg.net;Alexander Weber in Brussels at aweber45@bloomberg.net

To contact the editors responsible for this story: Dale Crofts at dcrofts@bloomberg.net, Christian Baumgaertel

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