Brussels, Jan 31 (IANS): The European Union should create an asset management firm to tackle huge bad loans that threaten to destabilise the euro-zone economy, the head of the bloc's banking watchdog has said.

In a seminar on Monday in Luxembourg at the European Stability Mechanism (ESM), European Banking Authority (EBA) Chairman Andrea Enria said "urgent and actionable" method was needed as the non-performing loans (NPLs) piled up in the EU, Xinhua news agency reported on Tuesday.

As a possible solution to tackle those NPLs, and "to deal with those bad loans" he proposed establishing an Asset Management Company (AMC), which is not designed for crisis prevention, but aims to repair the lending function of banks.

Tougher actions were needed as EBA has identified "market failures" in tackling bad loans, he said.

Klaus Regling, head of the ESM, welcomed Enria's idea of the AMC as "a valuable policy proposal" to reduce NPLs.

"Banks need to aggressively reduce NPLs, which are keeping down profitability, particularly in some countries," Regling said at the same event.

According to data released by the EBA, the EU has more than 1 trillion euros ($1.069 trillion) of bad loans, with Italian banks accounting for 276 billion euros ($295 billion), or 27.6 per cent of the total, the largest among the EU member states.

Moreover, there are 10 EU countries whose NPL ratios stand above 10 per cent.