European Banks Warned By ECB to Avoid Letting Bad Loans Pile Up

The European Central Bank urged the region’s big banks to do a better job scrutinizing companies’ ability to repay loans and weather the pandemic, warning them of the possibility that a mountain of loans eventually sours, weighs down the banking industry and slows the economic recovery.

In a letter to banks’ chief executives, the ECB’s supervisory arm said it is increasingly important for banks to assess these risks now instead of waiting until it is too late when problematic loans build up on balance sheets.

Lenders have been buoyed by unprecedented amounts of support from authorities over the pandemic. They’ve ...