"Eurozone banks are under increasing pressure to reduce high stocks of non-performing loans (NPLs) after Italy's Veneto Banca and Banca Popolare di Vicenza were put into liquidation this week and Spain's Banco Popular Espanol was put into resolution this month," Fitch Ratings said in a report on Thursday.
- NPL ratios are highest at the largest Greek and Cypriot banks while Italy had 12 banks with end-2016 ratios of more than twice the 5.1% weighted average reported by the European Banking Authority
- The contrasting treatment of Banco Popular Espanol, which was put into resolution, and Veneto Banca and Banca Popolare di Vicenza, which were liquidated, raises questions about the application of the EU's Bank Recovery and Resolution Directive (BRRD)
- We believe the treatment of troubled banks will be clearer once the EU's minimum requirement for own funds and eligible liabilities (MREL) is in place
- MREL is due to be implemented by 2022, with insolvency regimes across Europe being updated in the meantime to enable banks to issue non-preferred senior debt
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