ECB's Enria ready to use "stick" with banks on bad loans – paper

© Reuters. FILE PHOTO: A euro logo sculpture stands in front the headquarters of the European Central Bank in Frankfurt, Germany

FRANKFURT (Reuters) – The European Central Bank is ready to “use the stick” to get banks to set money aside against bad loans and reduce the overall level of bad debt resulting from the coronavirus pandemic, the ECB’s top supervisor, Andrea Enria, said in an interview published on Wednesday.

Enria said only 21 of the 113 banks directly supervised by the ECB could forecast the level of bad debt they would have by the end of next year, and they still have some way to go in preparing for an expected increase.

“We wouldn’t use the carrot in this case – we would rather use the stick,” he told Boersen-Zeitung.

“We are putting pressure on banks to reduce their NPL levels. We are asking them to fully provision for these assets within a set period of time and to submit realistic and ambitious NPL reduction targets to us.”

He added necessary steps may include using bad banks set up by national authorities to offload some of those problematic loans.

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