By Foo Yun Chee
BRUSSELS (Reuters) - The creation of a central clearing house may help Europe's banks reduce the trillions of euros of bad loans on their books by increasing transparency, a senior European Commission official said on Wednesday.
Eight years since the collapse of Lehman Brothers triggered a global banking meltdown, Europe's banks are estimated to have about 3 trillion euros (£2.63 trillion) in problem loans (NPL), crimping their ability to lend and scaring off investors.
The figures are worrying, Gert-Jan Koopman, deputy director general of state aid at the European Commission, told a conference.
"We have 10 member states, in which the NPL ratio is still above 10 percent according to our estimates. More than 40 percent of NPLs is concentrated in 5 member states alone, Cyprus, Greece, Slovenia, Portugal and Italy. Italy alone holds 25 percent of all NPLs in the European banking system," he said.
Koopman said a clearing house might encourage banks to clean up their balance sheets and give investors a clearer picture of the bad loans.
"We think there is possibly a case for a clearing house that would effectively help to provide more transparency ... This would be created at national level or even at European level where all interested banks could register deals which they would like to sell," he said.
He said such an agency could act as a one stop shop providing essential information to potential investors through standardised and predictable deal-making processes.
"Here the NLPs would remain on the balance sheet of the banks but there would be a significant concerted effort made to deal with the lack of transparency and market functioning," Koopman said.
Koopman said the bloc's state aid rules would not be a barrier. The EU's stringent rules on state aid have forced a swath of banks across Europe restructure, shed operations and halt dividend payouts in return for regulatory approval of their billion euro bailouts in the last eight years since the crisis.
"State aid rules do not stand in the way of the creation of such a platform, in fact we welcome member states' interest in this and we would be ready to work with them." he said.