Euro zone banks are still piling up new bad loans, ECB warns

FRANKFURT (Reuters) - Euro zone banks are still seeing a "high" number of loans go unpaid and borrowers declare default despite years of economic growth, the European Central Bank's top supervisor Andrea Enria said on Friday.

But Enria also praised the sector's "ambitious" plans to reduce a mountain of non-performing loans (NPLs) inherited from the last recession. They are particularly high still in countries such as Italy, Greece and Portugal.

Enria also urged lenders to step up their efforts and stem a flow of newly soured credit and customer defaults.

"It seems that inflows of new NPLs are still on the high side – not least when you consider where we are in the business cycle," Enria said.

"It also seems that some banks with high NPLs are still reporting increasing default rates. We find this somewhat worrying, and we urge banks to stem this inflow by rethinking their underwriting standards and engaging with distressed debtors," he added.

The ECB has been putting pressure on banks to tackle the issue of old and new unpaid loans, including via new rules that prompted pushback from Italy and were eventually watered down.

Enria said, however, that banks appeared finally to be coming to grips with the problem.

"Looking at the most recent NPL strategies, their plans for the future are also quite ambitious," he said. "Most importantly, they are particularly aggressive in dealing with the older vintages of NPLs."

More than half of unpaid loans at problem banks are older than two years and more than a quarter older than five.

(Reporting by Francesco Canepa; Editing by Balazs Koranyi and Gareth Jones)

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