Provisions hiked by 25%


The European Central Bank has told European lenders to increase their provisions for bad shipping loans by a quarter to EUR 7.3bn ($9.25bn).

This came with the much-awaited announcement of a stress test on the continent’s banks, also known as “Asset Quality Review” (AQR).

Mainly affected are German banks, which have to hike their provisions to EUR 5.2bn from EUR 4.1bn, the ECB said in a presentation of the test’s aggregate results.

Greek banks have to increase theirs by EUR 200m to EUR 1.1bn; Dutch banks by EUR 100m to EUR 600m. Italian banks can keep their provisions at the present level of EUR300m, the report said.

“Following the credit file review, a total of 21.3\% of the shipping debtors reviewed were reclassified to non-performing, and the total amount of provisions increased from EUR 5.9bn to EUR7.3bn (+25\%),” the ECB said.

As TradeWinds’ print edition reported on Friday, Europe’s new banking watchdog said it was “concerned about the high sensitivity of certain German banks’ CET1 ratios to long term cash flow assumptions used for provisioning of shipping loans”.

The ECB said “it raised doubts on the reliability of these cash flow projections for the purposes of the AQR” and decided to impose “prudential buffers” on these cash flows for calculating the provisions German banks’ needed.

However, the ECB refrained from taking more drastic measures on this accounting method, saying the prudential buffers it applied “do not constitute a judgment on the use of projected cash flows for accounting purposes”.


Share this!