Member states of the European Union (EU) have agreed to implement new rules that would assist banks to recover assets from defaulters.
According to a Reuters report, the new regulations will introduce a new mechanism to facilitate out-of-court procedures on foreclosures.
It will enable the lenders to recover the security collateral of the borrowers, when they default on repayments.
The regulation seeks to reduce the amount of losses that banks incur due to bad loans.
However, the new rules still await the green light from the European Parliament.
Once it is confirmed, the mechanism will be implemented only on new business loans. It will be applied when the bank and the respective borrower agrees to the clauses, when the loan is approved.
Commenting on the proposed regulations, Finland Finance Minister Mika Lintila was quoted by the news agency as saying in a statement: “It is important to give legal tools to banks to recover the value of failing loans quickly without having to go to court, while ensuring a high level of protection for borrowers.”
Currently, the level of non-performing loans in the EU region is at its lowest since the financial crisis last decade.
However, the level of bad loans continues to be at a concerning level in some countries such as Greece, Cyprus, Portugal and Italy.
Earlier this year, EU approved a package of banking reforms aimed at mitigating financial risks in the sector.
It requires the banks to hold additional capital to cover unexpected losses, among other requirements.