Exclusive: EU to offer banks capital relief to help coronavirus-hit firms - sources

By Huw Jones LONDON (Reuters) - Banks in the European Union are to receive more capital relief so they can help companies struggling in the coronavirus pandemic without having to make crippling provisions for loans during a looming deep recession, sources said on Monday. The bloc's financial services chief Valdis Dombrovskis is expected on Tuesday to propose that the EU 'emulate in some form' a move by the U.S

Reuters April 28, 2020 00:05:37 IST
Exclusive: EU to offer banks capital relief to help coronavirus-hit firms - sources

coronavirus -hit firms - sources" src="https://images.firstpost.com/wp-content/uploads/reuters/04-2020/28/2020-04-27T113136Z_1_LYNXNPEG3Q0TA_RTROPTP_2_HEALTH-CORONAVIRUS-EU-BANKS.jpg" alt="Exclusive EU to offer banks capital relief to help coronavirus hit firms sources" width="300" height="225" />

By Huw Jones

LONDON (Reuters) - Banks in the European Union are to receive more capital relief so they can help companies struggling in the coronavirus pandemic without having to make crippling provisions for loans during a looming deep recession, sources said on Monday.

The bloc's financial services chief Valdis Dombrovskis is expected on Tuesday to propose that the EU "emulate in some form" a move by the U.S. Federal Reserve to allow banks to ease how they calculate their leverage ratio, sources familiar with the package said.

The ratio is a yardstick of solvency that measures capital against total assets on a non-risk-weighted basis.

The Fed proposed that until March 2021 banks do not have to include holdings of U.S. government bonds and deposits parked at the central bank in their assets tally for calculating the leverage ratio.

This would free up their balance sheet to offer more loans to companies during the pandemic.

The EU package comes on top of regulators allowing banks to tap some of their buffers to ensure continuity in lending.

Bankers said there could be political opposition to excluding government debt, even on a temporary basis.

Europe's biggest banks collectively had 790 billion euros ($856 billion) in deposits with the European Central Bank at the end of 2019, and holdings worth 830 billion euros in government debt on their balance sheets.

Excluding both holdings would increase the headroom of the average leverage ratio, at around 4.85%, by 80 basis points, the sources said.

Dombrovskis is also expected to propose relief from an accounting rule for loan loss provisioning, the sources said.

The rule known as IFRS 9 forces banks to set aside some provisioning at the start of a loan and more later on if there is a risk of default, which for many corporate borrowers has become more likely as the pandemic shuts down swathes of economic activity.

Provisions translate into reductions in a bank's capital buffers.

Under current rules, banks that had decided before the pandemic to apply the new rule in full are not allowed to switch to an alternative, phased-in approach that offers temporary relief of up to 70% on the capital hit from provisioning.

The EU package would allow banks to switch to the phased-in approach, the sources said. It could also raise the relief to 100%, as proposed by the global Basel Committee that sets bank capital rules.

A separate decision by Basel to delay by a year a set of new bank capital rules is also likely to be endorsed by Dombrovskis, the sources said.

"Whatever comes out tomorrow is likely to be targeted specifically at COVID-19 , time limited, low risk in nature and consistent with changes suggested by other jurisdictions," said Michael Lever, head of prudential at the Association for Financial Markets in Europe.

Banks in Europe are expected to report higher provisions in upcoming first-quarter earnings due to the impact of national lockdowns on companies.

Dombrovskis is also expected to propose bringing forward new rules that allow banks to offset the value of software against capital requirements, the sources said.

The European Commission declined to comment on the package.

(Reporting by Huw Jones; Editing by Louise Heavens/Hugh Lawson/Susan Fenton)

This story has not been edited by Firstpost staff and is generated by auto-feed.

Updated Date:

TAGS:

also read

France, Germany to agree to NATO role against Islamic State - sources
| Reuters
World

France, Germany to agree to NATO role against Islamic State - sources | Reuters

By Robin Emmott and John Irish | BRUSSELS/PARIS BRUSSELS/PARIS France and Germany will agree to a U.S. plan for NATO to take a bigger role in the fight against Islamic militants at a meeting with President Donald Trump on Thursday, but insist the move is purely symbolic, four senior European diplomats said.The decision to allow the North Atlantic Treaty Organization to join the coalition against Islamic State in Syria and Iraq follows weeks of pressure on the two allies, who are wary of NATO confronting Russia in Syria and of alienating Arab countries who see NATO as pushing a pro-Western agenda."NATO as an institution will join the coalition," said one senior diplomat involved in the discussions. "The question is whether this just a symbolic gesture to the United States

China's Xi says navy should become world class
| Reuters
World

China's Xi says navy should become world class | Reuters

BEIJING Chinese President Xi Jinping on Wednesday called for greater efforts to make the country's navy a world class one, strong in operations on, below and above the surface, as it steps up its ability to project power far from its shores.China's navy has taken an increasingly prominent role in recent months, with a rising star admiral taking command, its first aircraft carrier sailing around self-ruled Taiwan and a new aircraft carrier launched last month.With President Donald Trump promising a US shipbuilding spree and unnerving Beijing with his unpredictable approach on hot button issues including Taiwan and the South and East China Seas, China is pushing to narrow the gap with the U.S. Navy.Inspecting navy headquarters, Xi said the navy should "aim for the top ranks in the world", the Defence Ministry said in a statement about his visit."Building a strong and modern navy is an important mark of a top ranking global military," the ministry paraphrased Xi as saying.