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Guindos Says Too Early for Discussion About European Bad Bank

Guindos Says Too Early for Discussion About European Bad Bank

(Bloomberg) -- European Central Bank Vice President Luis de Guindos said it’s too soon to discuss the possibility of creating a European “bad bank” to deal with risky debt.

The ECB has not taken any decision or entered into any discussion about the possibility of creating a bad bank at the European level, he said in an interview with Spanish newspaper ABC. He cited Spain’s Sareb as an example of an efficient tool for cleaning up bad loans from the banking industry.

“It is too early for this discussion at the moment,” Guindos said in an interview conducted on June 9 and published on Sunday. Spain’s banking sector is “currently not giving cause for concern,” he said. The industry has been through an intensive clean-up and consolidation process in the last 10 years, he said.

Reuters reported last week that ECB officials are drawing up a plan to deal with potentially hundreds of billions of euros in unpaid loans stemming from the coronavirus crisis and that the central bank would be sounding out the idea of a bad bank. The news agency reported that the European Stability Mechanism could be a guarantor for the bad bank.

Profitability of the region’s banks will be further affected by the coronavirus crisis, Guindos said.

“Provisions will increase, there will be a rise in the number of defaults and non-performing loans, and this will affect the profit and loss account, further reducing the bottom line,” he said.

Consolidation in the banking industry could help lower costs and increase efficiency of certain lenders, Guindos said. He highlighted that it’s not the supervisor’s role to say what form specific operations should take.

©2020 Bloomberg L.P.