EU watchdog considers setting up asset management company to tackle bad loans

The European Union (EU) should create an asset management company as an option to tackle the big amount of bad loans that threaten the stability of the euro-zone economy, the head of the bloc's banking watchdog said on Monday.

In a seminar in Luxembourg at the European Stability Mechanism (ESM), European Banking Authority (EBA) Chairman Andrea Enria said as the non-performing loans (NPLs) piled up in the EU, to deal with those bad loans was "urgent and actionable."

As a possible solution to tackle those NPLs, he proposed establishing an Asset Management Company (AMC), which is not designed for crisis prevention, but aims to repair the lending function of banks.

Tougher actions were needed as EBA has identified "market failures" in tackling bad loans, he said.

Klaus Regling, head of the ESM, welcomed Enria's idea of the AMC as "a valuable policy proposal" to reduce NPLs.

"Banks need to aggressively reduce NPLs, which are keeping down profitability, particularly in some countries," Regling said at the same event.

According to data released by the EBA, the EU has more than 1 trillion euros (1.069 trillion U.S. dollars) of bad loans, with Italian banks accounting for 276 billion euros (295 billion dollars), or 27.6 percent of the total, the largest among the EU member states. Moreover, there are 10 EU countries whose NPL ratios stand above 10 percent. Endi