The shadow of defaults on the balance sheets of European banks

The shadow of defaults on the balance sheets of European banks

Bank loans to the real economy in some European countries

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NPL declined in the second quarter of 2021

According to data released by EBA in early October, the NPL ratio for the second quarter of 2021 is the ratio of total loans to eurozone banks (NPL ratio) Improved further, reaching 2.4% from 2.6% in the previous quarter. The decline in small and medium enterprises (SMEs) in June 2021 is particularly pronounced. NPL ratio 6%, compared to 8.4% by the end of 2019, despite signs of suffering in areas most affected by anti-Kovid restrictions (accommodation, catering, arts, entertainment and leisure activities).

Analyzing the top four economies in the eurozone (see Figure 3), we can see the downward trend except for Spain NPL ratios This reflects the general dynamics of all countries, but there are important differences with regard to Italy. In fact, the decline in France and Germany was moderate and was mainly associated with an increase in the denominator (i.e. total loans) during the epidemic.

Impact of non-performing loans on total bank loans

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On the contrary, the number of loans to Italian banks is declining Not performing More importantly (6.7% to 3.7% in two years), mainly due to the large decline in NPL stock, which decreased by 36% between December 2019 and June 2021. So the “cleanup” continues with the financial statements implemented by our credit institutions since 2016, with the support of key measures implemented by the state such as GACS.

Less well Provisioning And concessions granted to creditors

Recovers a dominant outlook despite the downturn NPL ratioTwo other risk indicators of Euro Area Banks’ assets fell further in the second quarter of 2021: Coverage ratio And Tolerance ratio. The first represents the ratio between the loss-making terms of non-performing loans and the stock of NPLs: the bank’s ability to withstand losses without compromising on resilience. The Tolerance ratio On the other hand, it measures the burden of loans allowed by credit institutions on total loans (e.g. lowering interest rates or extending repayment time). In this case, an increase in the ratio indicates that consumers-debtors are having greater difficulty in fulfilling their obligations. EBA data show negative (albeit limited) evolution in both indicators between April and June this year, but above all, the confirmation of a continuing bad trend over several quarters is worrying (see Figure 4).

Diverse image

In this context, too, focusing on the state of the various national banking systems reveals a diverse picture. Italy and France have non-performing loan terms higher than the eurozone average, while Germany and Spain are below average. In connection with this Tolerance Proportion, Italian and Spanish banks recorded higher-than-average euro area ratios, while French and German banks recorded lower-than-average (see Figure 5).

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