Hundreds of billions of euros of bad loans, or having little prospect of being, continue to plague the balance sheets of european banks : 865 billion euro at the end of the first quarter of 2017, according to the latest figures from the european central Bank (ECB), with regard to the important establishments. A level certainly in decline (5,92% of the total outstanding loans, compared to 6.17% at the end of 2016), but the resorption of this stock of bad debts is very slow, which maintains a risk to the financial stability of the entire EU.
[Asset quality of european banks : total loans and advances billions of euros, the amount of non-performing loans (NPL) and the ratio of NPL to total loans in percent. Credit : ECB, Supervisory Banking Statistics First Quarter of 2017]
The ECB has therefore decided to toughen still further the accounting treatment of this “black hole” in the balance sheets of banks, knowing that the doubtful accounts are funded to the extent of about 60% in average in Europe .
“The banks are invited to ensure a full coverage of the fraction of non-guaranteed new NPL [non-performing loans, editor’s note] at the latest after two years and not later than after seven years in respect of the share collateral”, indicates that Wednesday, the european institution in a press release.
What is the current stock ?
The banks will also be required to “justify to the supervisory authorities, any deviation from the guidelines” practices of accounting provision in a timely and passage losses. The text is submitted to public consultation until 8 December.
This new device strengthening the prudential expectations of the supervisor in order to avoid under-estimation of the risk of default pertains only to new loans, not on the stock of doubtful loans, which can reach alarming proportions in some countries. Behind the european average of 5,92% (in France the rate is 3.52 per cent), the share of receivables rotten in the balance sheets of banks may climb to 46% in Greece, 20% in Portugal, 14% in Italy and 13% in Ireland. Italian banks hold only 28% of NPL in Europe.
[Asset quality by country. Total loans, in billions, the total of NPL and the ratio of NPL. Credit : ECB, Supervisory Banking Statistics First Quarter of 2017]
The ECB warns that it will unveil “by the end of the first quarter of 2018” new measures to reduce the stock of “non-performing loans”, through “devices transitional appropriate”. Several tracks have been circulating for several months, such as the creation of “bad banks”, of the defeasance structures, or asset management companies (AMC) dedicated by country, which rachèteraient the NPL to their economic value, or through the securitization of certain receivables, with the support of the States.