Germany presses for more aggressive offloading of non-performing loans

YANNIS KOLESIDIS

Two men stand outside the Bank of Greece in central Athens, Greece, 11 November 2015.

Germany presses for more aggressive offloading of non-performing loans


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The North-South divide widens in banking policy, as Germany pushes for more aggressive offloading of Non-Performing Loans.

Non-performing Loans (NPLs) are especially high in economies with high levels of unemployment and small and medium-sized enterprises, which suffered disproportionately during the crisis. According to Luxembourg Wort, Germany is pushing for higher targets for the sale of NPLs by European lenders. The main argument is that NPLs prevent banks from lending, holding back growth.

Currently, EU banks have accumulated an estimated €793bn worth of bad loans, a problem that is particularly acute in Greece, Italy, and Portugal. The European Central Bank is being pressed to revise targets and set new deadlines. The ECB provides banks with a two-year target plan, allowing them to provision fully against the potential loss on unsecured bad loans.

Policy objectives were set last year.

Eurozone periphery in crisis

Nonperforming loans in Greece make up to 46.7% of the banks’ loan portfolio, followed by Portugal at 17.8% and Italy at 12.3%.

Size matters, as Italy is the third biggest economy in the Eurozone and has amassed debt that is systemically significant, to the tune of €221bn, by far the highest in Europe.

The Greek systemic banks outperformed targets to reduce their “bad loans,” the Bank of Greece reported in March. Greek lenders offloaded €4,7bn worth of bad debt since June 2016, reducing their total bad debt portfolio from €107bn to €95,7bn. The objective set by the ECB is to reduce the Greek NPLs portfolio to 35% by the end of 2019.

The Irish Central Bank warned on Tuesday that up to 14,000 mortgage holders that are failing to service their home mortgages might lose their homes.

The warning comes from a research paper entitled “Resolving Non-Performing Loans in Ireland.” The number of homes cited relates to plans by the state-owned TBS to offload a €3,7bn portfolio of non-performing loans, including 14,000 mortgages.

The Central Bank’s research note warns that more than 28,946 non-performing mortgages may end up in home repossession; over the last five years, non-performing mortgages have soared by 12,700, that is, a 34% rise.

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