The Strategist

Volume of bad loans in European banks reaches $ 1.17 trillion

03/16/2018 - 13:28

The volume of "bad loans" in European banks has reached about $ 1.17 trillion. The situation is particularly difficult in Greece and Italy. To get rid of ballast, European banks even began to recruit new employees. However, there are problems with American and Japanese banks, too.

BookMama via flickr
BookMama via flickr
According to Bloomberg, European banks are not able to return bad loans worth € 944 billion ($ 1.17 trillion). "For European banks, this is a headache that cannot simply disappear: € 944 billion of overdue loans, which put pressure on financial statements," the agency reports.

Such a number of overdue loans do not allow banks to issue new ones. Banks from European countries, faced with severe consequences from the debt crisis, are having the biggest problems. For example, Greece, which has not yet completed the bailout program, tops the list of countries with the highest percentage of non-performing loans (loans overdue for more than 1 day in Greece account for 50% of all loans issued). Italy has the most bad debts in absolute terms (224.2 billion euros, 25% of all issued loans overdue).

Judging by the absolute figures, amount non-performing loans in Greece reaches 112.3 billion euros, in Spain - 131.4 billion euros, Ireland - 26 billion euros.

At the same time, most European banks cannot quickly get rid of their debts. For example, most of the large Italian financial institutions have already expressed their desire to sell them. However, according to Italian law, the release of collateral from creditors is very slow, Bloomberg notes.

Recently, European banks have begun to increase the staff for the first time in several years of permanent layoffs. The main areas for attracting new personnel are audit and technological departments, that is, the emphasis is placed on streamlining and verification, and "shoveling" is under way.

Solving the problems is not of a financial nature, and requires a steady growth of business of the economies of the EU countries in general, which will allow to gradually restructure the problem debt.

So far, neither Greece, nor Italy have it. Given the debts of Italy, which exceed 130% of the country's GDP, experts even assume the possibility of default in the country.

However, not everything is all right with banks in the rest of the world, too. The International Monetary Fund (IMF) have already expressed concerns about the situation.

Banks, which account for approximately $ 17 trillion of assets, or approximately one-third of the total GOSS assets (global systemically important banks), may still have an insufficient long-term sustainability level of profit even in 2019.

The fact that these banks are not able to receive sufficient profits will not allow them to "generate sufficient capital in the future if there are dangerous shocks," suggests Financial Advisor and Director of the IMF's Monetary and Capital Markets Department Tobias Adrian.

Thus, the lost profit (as IMF analysts write, it will be less than 8% for each of the nine banks in 2019) will create a risk for the financial stability of these institutions.


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