The ECB is set to allow the euro zone’s top banks to meet less stringent definitions for bad loans than previously planned when it makes an unprecedented review of lenders’ balance sheets this year.
The 128 lenders under scrutiny by the European Central Bank were allowed to apply the softer “simplified definitions” for bad loans in their first data submissions for the asset quality review (AQR).
Two sources with knowledge of the matter said the banks, which will come under ECB supervision later in 2014, will be able to use the easier definitions for the rest of the assessment too.
An ECB spokeswoman said the issue was still being discussed and a decision was expected soon.
Some at the ECB had hoped to apply the full definitions rolled out by the European Banking Authority (EBA) in October, for assessing when loans go bad and the impact of restructured loans. However, many banks cannot adapt to the new guidelines in time for the review.
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