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EU ministers to back looser rules to keep bank credit flowing to economy

BRUSSELS (Reuters) – European Union finance ministers are set to endorse a loosening of rules to allow banks to keep credit flowing to the economy as the coronavirus epidemic stifles business activity across the bloc.

“It is crucial that banks continue financing households and corporates, including Small and Medium sized Enterprises experiencing temporary difficulties amid the COVID-19 pandemic,” the ministers are likely to say after a video conference on Thursday, according to a document prepared for the meeting.

“To this end, making full use of the flexibility provided for in the prudential and accounting framework, is essential at a time when sufficient financing to cover financial pressures is vital for the economy,” the document also says.

The European Central Bank has already eased capital requirements for the banks it supervises to help them cope with the effects of the pandemic that has forced many companies into hibernation and made loan repayments difficult or impossible.

Many EU governments have also offered stop-gap moratoriums such as repayment holidays, state guarantees and other relief measures for companies and individuals to prevent the banking system from collapsing.

“The Ecofin (EU ministers) will give banks the necessary flexibility to help their customers with loans,” German Finance Minister Olaf Scholz said in a video message before the talks.

However, he said that flexibility did not mean getting rid of the necessary regulations developed after the Lehman Brothers bankruptcy and the 2008 economic and financial crisis.

(Reporting by Jan Strupczewski; Editing by Kirsten Donovan)