The European Central Bank president said at a banking conference in Frankfurt that while the eurozone’s recent economic recovery would help reduce the proportion of non-performing loans on banks’ balance sheets, there remained structural weaknesses.
“These [weaknesses] include inadequate internal governance structures in banks, ineffective and costly debt recovery procedures in some Member States and misaligned incentives that prevent a quick resolution of NPLs,” Mr Draghi said.
He said a new accounting standard, IFRS 9, would help solve problems with NPLs more quickly during future financial crises. “This means that banks will have to recognise impairments earlier, curtailing excessive forbearance towards NPLs and helping ensure that banking sector repair takes place in a timelier and more comprehensive manner in future downturns.”
The ECB president added that the European Systemic Risk Board, set up to monitor financial stability in the region, had come up with a new series of guidelines.
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