NPLs remain dangerously to catastrophically high in Italy, Greece, Portugal, and Cyprus.
The bad-debt problem at banks in the Eurozone, an ongoing legacy of cascading loan defaults during the last financial crisis, may have grown smaller overall in recent years but it’s still a major cause for concern. That was the basic thrust of a speech delivered by Andrea Enria, Chair of the Supervisory Board of the ECB, on Friday. And these bad loans remain dangerously to catastrophically high in several countries, including Italy, Greece, Portugal, and Cyprus.
Over the past five years the total stock of non-performing loans (NPLs) on the balance sheets of Eurozone banks has fallen from just over €1 trillion to €580 billion. During the same period, the ratio of gross NPLs in the region has fallen from 8% to 3.8% — the result not just of a shrinking NPL stock but also growth in banks’ total loan balances. Nonetheless, the ratio remains well above pre-crisis levels and is far higher than in other major advanced economies. For example, in the United States and Japan the ratio is 1.6% and 1.1% respectively.
In the Euro Zone there’s also a huge disparity between national NPL ratios, with countries like Germany, Luxembourg, Belgium, Finland, the Netherlands and the Czech Republic clocking in at or around 2%, while Italy’s NPL ratio is 9.5% and three Eurozone countries still have ratios above 10%:
- Greece: 43% (down from 50% since 2016)
- Cyprus: 22% (down from 49% in 2016)
- Portugal: 11% (down from 19% in 2016)
“The problem of NPLs is not solving itself – and it has not yet been resolved,” Enria said…