Finance
ECB tells small banks to tackle old bad loans
Published by Global Banking & Finance Review®
Posted on September 15, 2025
2 min readLast updated: January 21, 2026
Global Banking & Finance Review®
Company
Published by Global Banking & Finance Review®
Posted on September 15, 2025
2 min readLast updated: January 21, 2026
The ECB is urging small banks to increase provisions for old bad loans, aligning them with larger banks. New guidelines will be phased in by 2028.
FRANKFURT (Reuters) -The European Central Bank is increasing pressure on small banks to tackle loans that went sour more than six years ago by forcing them to set aside more money to cover potential losses.
In guidelines published on Monday, the ECB said "less significant institutions" too, like their larger rivals, would have to make growing provisions for their stock of unpaid loans.
Small banks had so far been exempted from this provisioning schedule. This has resulted in a lower coverage ratio, which measures provisions against so-called non-performing loans (NPL), than at larger banks.
"Some smaller banks continue to face challenges stemming from persistent stocks of long-standing NPLs," Sharon Donnery, a member of the Supervisory Board of the ECB, said in a blog post, adding that they maintain fewer reserves to cover potential losses.
The ECB's move follows an increase in NPLs - from 1.7% to 2.3% - on the book of smaller banks.
The new guidelines will be phased in gradually until the end of 2028 and apply to loans originated before April 26, 2019. Banks with negligible amounts of bad loans will be exempted.
The ECB will now consult the industry on the new guidelines until October 27.
(Reporting by Francesco Canepa, Editing by Louise Heavens)
The ECB is requiring small banks to set aside more money to cover potential losses from loans that have been non-performing for over six years.
Small banks had been exempt from the provisioning schedule, which resulted in a lower coverage ratio for non-performing loans compared to larger banks.
The proportion of non-performing loans for smaller banks has increased from 1.7% to 2.3%, prompting the ECB's new guidelines.
The new guidelines will be phased in gradually until the end of 2028 and will apply to loans originated before April 26, 2019.
The ECB will consult the banking industry on the new guidelines until October 27.
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