Here are the harmful effects of the EBA banking rules on companies
Why entrepreneurs and companies are alarmed by the EBA regulation on capital requirements.
The reflections (and the controversies) continue regarding the entry into force of the EBA Regulation on the capital requirements which all European banks must comply with from January 1st. Basically, compared to what is happening now in Italy, the criteria on the basis of which credit institutions can establish that a customer is unable to repay his debt are becoming more stringent, with problematic consequences especially for account holders in charge of automatic debits, the so-called Rid.
The Bank of Italy promptly threw water on the fire, which in a note issued at the end of December clarified that the changes concern "exclusively the way in which banks and financial intermediaries must classify customers for prudential purposes, that is for the purposes of calculating the mandatory minimum capital requirements for banks and financial intermediaries ". Certainly this new definition of default “can have repercussions on the credit relations between intermediaries and their customers, whose management, as in all situations of default, may involve the adoption of initiatives to ensure the regularization of the credit relationship. The new definition of default does not introduce a prohibition on allowing overruns: as already now, banks, in compliance with their policies, can allow customers to use the account that leads to overruns beyond the availability present in the account or, in the case of a credit line, over the credit limit ".
Despite the reassurances of Via Nazionale, however, many are concerned above all for families and small businesses and for those who are paying (and will still pay for months, if not years) the consequences of the ongoing pandemic.
THE UNIMPRESA STUDIO
In-depth notes on the issue came from Unimpresa, the trade association of micro, small and medium-sized companies in the country. According to an analysis by its research center, Italian banks are the most penalized by the new European rules on overruns and bad debts and the damage becomes "enormous" especially for SMEs "for which flexibility in the bank is essential". One company highlights how the meaning of "relevance" of the back payment changes, in relation to which two other thresholds also come into play: 100 euros for families and 500 euros for businesses. Not only that: in addition to the lowering of the thresholds, the new EBA rules "do not allow room for maneuver for credit institutions, while the 'old' rules allowed the banks themselves the possibility of granting offsetting between credit lines to customers" . Furthermore, the customer now remains in a default state, after the regularization of payments, for another 90 days, while until 31 December 2020 the default state ended by settling past debts.
Looking at what happens with the arrears threshold, for example on a credit line of 100 thousand euros, the relevant arrears threshold drops from 5,000 euros to 1,000 euros. "At the base of the choices of the European regulator is the need to harmonize banking systems, which are in fact very different from each other but what, on paper, was born as a measure of fairness turns into a severe punishment for our country and arrives in a very difficult moment for our economy "noted the vice president of Unimpresa, Salvo Politino, who asked for an" urgent intervention by the government to take an active part, in Europe, at least for a temporary suspension of the new EBA rules ".
The most significant change of the new rules in force since January 1, however, concerns the management of "red" accounts as automatic debits will no longer be allowed if customers do not have sufficient liquidity on their bank deposits. Therefore, there is a risk of a sudden stop in the payments of utilities, salaries, social security contributions, loan installments. Without forgetting that from this month those who have an "overdraft" current account run the risk of being immediately "arrears" against various subjects, from financial institutions to INPS, from employees to so-called utility companies (energy, gas, water, telephone) . The same rules establish that for a non-payment of more than 100 euros, which lasts for three months, the customer is classified as a bad payer, all his exposure to the bank is classified as a non-performing loan and the report is sent to the central risk office. "For millions of small and medium-sized enterprises there is therefore the concrete risk not only of a sudden lack of small liquidity, deriving from the sudden stop of the accounts in red, but also of a significant credit squeeze – reads a note from Unimpresa -. The picture of the banking sector is not homogeneous and information is insufficient: some banks, in fact, seem oriented, at least in the first phase of the application of the new rules, to maintain a softer line, especially in known customers ”.
THE ALARM OF THE UNIONS
The issue in recent days has also seen the tough stance of the banking unions. In particular, it was Fabi, the first trade union organization in the sector, to make itself heard with the general secretary, Lando Maria Sileoni, who spoke about it on various television broadcasts. “Branch managers have always been very helpful with the flexibility regarding the use of current accounts. But from tomorrow the directors will no longer have autonomy and this flexibility. So taking it out on those who work in the bank is madness ”explained an interviewee on Tg5. Guest of "Coffee Break", on La7, highlighted the possible negative repercussions: "With the new rules of the European Banking Authority (Eba) relating to current account overruns and the management of bad loans, families and SMEs will be in difficulty. This, on the other hand, is the time to stand by the side of the poor people who live with those 50 or 100 euros of overdraft that is often guaranteed by the branch manager ”.
Sileoni has also pointed the finger at those who have not moved in time. "The topic had been known for four and a half years: the EBA had dictated the guidelines in June 2016, adopted in October 2017 by the European Union and then subject to public consultation by the Bank of Italy in 2019: the experts , in short, they knew everything. But no bank has had the courage to say that the overrun in red – which is not present in the banking systems of Northern Europe – will automatically lead to reporting to the Central Credit Register. This means not being able to receive, for 36 months or 3 years, neither loans nor credit lines ”explained Secretary General Fabi. “The Eba rules – he added – push banks to contain bad loans, but penalize SMEs and families above all. All this, however, ignoring the fact that in Italy 63% of total non-performing loans are linked to loans exceeding 1 million euros ".
Riccardo Colombani, number one of First CISL, is also on the same line: “With the Recovery Fund – he said in an interview with AdnKronos – the European Union has taken a decisive step towards sharing, strengthening its political dimension. It is therefore important that the EBA and the ECB do not move in reverse. Unfortunately, the new rules on the classification of NPLs, as well as those of calendar provisioning, are still affected by a technocratic approach which in this phase, marked by the pandemic and a very strong economic recession, risks heavily penalizing businesses and families ". According to Colombani, in fact, “this is a particularly penalizing set of rules for an economy like the Italian one, characterized by a strong presence of small and very small businesses. First Cisl has repeatedly reported the risks associated with the management of impaired loans in recent years, asking that the latter be carried out by banks in a patient manner and thus avoiding unnecessary bankruptcies and social tragedies ”.
THE CRITICS OF ABI
Palazzo Altieri, however, claims what has already been done in past years. "Since September 2015, when the activities aimed at defining the new rules on default were launched by the EBA, the ABI strongly highlighted in the responses to the public consultations the excessive rigidity of the thresholds indicated from the Eba and the potential negative repercussions and risks associated with the new rules ”commented the general manager, Giovanni Sabatini. "The attention to the issue, from 2016 onwards, has always been maximum and the activity aimed at obtaining changes to the rules was followed by a systematic action by the ABI in concert with the business and consumer associations in order to adequate and timely dissemination of information to customers – he continued -. This activity took the form, among other things, in the creation of explanatory Guides such as the Guide, aimed at businesses, on 'The new European rules on default' – prepared in collaboration by ABI and the main business representative associations – or the 'Technical guide to the new European rules on the definition of default for natural persons' and other tools such as the infographic “Pay more attention to maturities and reimbursements”, created with consumer associations. Documents published as early as July 2019 and available on the ABI website ".
In the meantime, together with the Alliance of Italian Cooperatives (AGCI, Confcooperative, Legacoop), Casartigiani, CIAAgricoltori Italiani, CLAAI – Confederation of Free Italian Artisan Associations, CNA – National Confederation of Crafts and Small and Medium Enterprises, Coldiretti, Confagricoltura, Confapi, Confartigianato, Confcommercio, Confedilizia, Confesercenti, Confetra, Confimi Industria, Confindustria, the ABI sent a letter to the European institutions "in which – as stated in a joint note – there is a strong request to intervene urgently on certain regulations on the subject banking which, conceived in a completely different context from the current one and characterized by an excess of automatisms, risk irremediably compromising the recovery prospects of the Italian and European economy. The Associations – we read again – point out that in the face of an extraordinary emergency such as the current one, it is essential to go beyond the schemes of the past and have a capacity for vision that allows everyone to concentrate their efforts towards the common goal of recovery ”.
The role that credit has assumed during the crisis and the support it will have to provide in the post-pandemic is essential "to support companies in the path of restoring the economic conditions of their businesses, in conditions of uncertainty that risk continuing for a long period". For this reason, "it is necessary that a series of critical issues in the banking regulatory framework must be overcome to prevent situations of temporary difficulty for companies from turning into irreversible crises due to the automatisms incorporated in some first and second level rules and in a restriction of the offer bad credit in the current context ". It is therefore urgent to “intervene on the rules relating to the identification of debtors as impaired (so-called 'definition of default'). The combined provision of a restrictive rule, such as the one that limits the allowed delay in payment to 90 days, with the application, from January 2021, of new and more restrictive thresholds for overdue amounts, as well as the new criteria for processing of restructured loans, risk determining the classification as default of a very large number of companies, however healthy. These companies would lose access to credit, with what follows in terms of recovery prospects ”.
It is also necessary to “avoid that, when a credit is classified as impaired, the imposition of hedges on banks until the cancellation of the value of the credit (so-called“ calendar provisioning ”) occurs in too short and predetermined times. An approach of this type – which in general induces banks to restrict the criteria for granting credit – appears particularly harmful at this time, as it introduces a perverse incentive in favor of the sale of credit, at the first sign of deterioration, outside the of the regulated banking market, instead of encouraging the bank to accompany the customer on a restructuring process. In any case, these regulations must take into account the slowdowns observed throughout Europe in judicial activity resulting from the pandemic crisis ”.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/tutti-gli-effetti-nefasti-delle-regole-bancarie-eba-sulle-aziende/ on Sat, 09 Jan 2021 06:48:07 +0000.