EU Parliament says ECB has improved plan on bad loans but urges alignment with EU rules

BRUSSELS (Reuters) - The president of the European Parliament said on Thursday that European Central Bank's guidelines on banks' bad loans appeared to be in line with the legislature's legal opinion but urged the ECB to align its oversight with incoming EU rules.

The ECB appears "to have taken into account concerns expressed by the European Parliament," Antonio Tajani said in a statement commenting on the ECB's plan released on Thursday.

The Parliament had criticised an earlier version of the ECB plan saying it was beyond the supervisor's mandate.

Tajani said the legislature will further assess the ECB plan and said the ECB's banking oversight should move in line with incoming EU rules on bad loans that were proposed on Wednesday by the EU Commission and will need the approval of EU states and lawmakers

The rules proposed by the Commission differ in some aspects from the ECB guidelines.

Under the commission's legislative proposal, banks will have two years to fully cover unsecured loans and eight years to cover secured debt, while the ECB's guidelines say secured loans should be fully covered in a maximum seven years.

The EU proposals concern only newly granted loans, originated on or after March 14, while the ECB's guidelines involve any loan already on the books and classified as non-performing after April 1.

The ECB softened an earlier version of its guidelines that had led to fierce criticism, especially in Italy, where bad loan burdens are more acute.

It stressed on Thursday that its guidance was not binding and will be applied case-by-case, a move that Tajani said could be seen as addressing some of the concerns raised by the parliament.

In a legal opinion issued in November, the parliament said the ECB had no power to impose guidelines on provisioning to all euro zone banks under its watch because this was the prerogative of EU legislators.

(Reporting by Francesco Guarascio; editing by Philip Blenkinsop and Hugh Lawson)