Home / International / Five Charts That Explain How European Banks Are Dealing With Their Bad-Loan Problem

Five Charts That Explain How European Banks Are Dealing With Their Bad-Loan Problem

news image

For European banks, it’s a headache that just won’t go away: the 944 billion euros ($1.17 trillion) of non-performing loans that’s weighing down their balance sheets.

Economists say the pile of past-due and delinquent debt makes it harder for banks to lend more money, hurting their earnings. European authorities are prodding lenders to sell or wind down non-performing credit, but they’re split on how to tackle the issue, and some investors are 

disappointed
by the pace of progress.

Here are five charts that help explain the issue and how banks are tackling it.

The problem is particularly acute in the countries that were hit hardest by the sovereign debt crisis. Greece, which has yet to exit its bailout program, tops the list of non-performing loans as a share of total credit, while Italy has the biggest pile of bad debt in absolute terms.

Italian banks have fixed goals for shrinking their bad credit levels by selling portfolios or winding down loans.


Intesa Sanpaolo SpA
, the country’s biggest bank by market value, got a head start on its rivals two years ago and plans to accelerate the reduction of non-performing loans, Chief Executive Officer Carlo Messina said

last month
. He

says
other Italian banks “are doing the right job” and should make further progress this year.

Italy amassed its pile of non-performing loans during years of little or no economic growth. The problem is compounded by the country’s legal system, where it takes lenders longer to liquidate collateral than in many other countries. Italy overhauled its bankruptcy rules in October to make them quicker and more efficient.

European banks overall have cut their non-performing loans by more than 280 billion euros since the end of 2014. The European Central Bank, which supervises most of the bloc’s big lenders, says bad debt is still “a major problem” which has to be addressed lenders while the economy performs well.

The flow of new bad loans is declining in Italy, but the level remains above that seen before the financial crisis. The Bank of Italy says an improvement in the country’s real estate market is helping to reduce the risks for banks. According to the central bank’s most recent financial-stability report, key vulnerability indicators for lenders should continue to decrease over the next few quarters.

For a breakdown of European banks’ bad debts, click

here
.

— With assistance by Samuel Dodge

About admin

Check Also

Syrian capital, its suburbs calm after UN cease-fire vote

The Syrian capital and its embattled eastern suburbs were relatively calm on Sunday, following the U.N. Security Council's unanimous approval of a resolution demanding a 30-day cease-fire across Syria, opposition activists and residents of Damascus said. The activists reported few violations, including some clashes, on the southern edge of the rebel-held suburbs, known as eastern…

Leave a Reply

Your email address will not be published. Required fields are marked *