Europe’s Banks Are Still Drowning In Bad Loans

A “Major Concern”

The European Banking Authority EBA, which (we guess) is fighting for its survival after the ECB has become the sole supervisor of Europe’s “systemically relevant” banks, has recently issued a comprehensive report on the European banking system (this included the unintended revelation that its employees have yet to master the intricacies of Exel).

As an aside, we have little doubt that this bureaucracy will survive. Has there ever been a case of an EU bureaucracy not surviving and thriving? We don’t recall one off the cuff, but perhaps we are mistaken. We’re sure some reason will be found to preserve this particular zombie sinecure as well.

Hey guys! We’re still issuing reports! See how important it is to keep us well-funded?

Among the things the EBA’s report apprises us of, is that European banks continue to be submerged in bad loans, in spite of all the bailouts and extend & pretend schemes that have been implemented in recent years. AsReuters reports:

“The scale of bad loans held by banks in the European Union is “a major concern” and more than double the level in the United States, despite an improvement in recent years, the EU’s banking regulator said on Tuesday.

Non-performing loans (NPL) across Europe’s major banks averaged 5.6 percent at the end of June, down from 6.1 percent at the start of the year. But that compares with an average of less than 3 percent in the United States and even lower in Asia, according to the European Banking Authority (EBA).

The total of NPLs across Europe is about 1 trillion euros ($1.1 trillion), equivalent to the size of Spain’s annual gross domestic product (GDP) and 7.3 percent of the EU’s GDP.

Tuesday’s figures were the first time detailed data on NPLs, defined as a loan that is more than 90 days overdue or where problems are spotted earlier, have been released in Europe. The EBA data covered 105 banks, spanning 20 EU countries and Norway.

Some 16.7 percent of loans at banks in Italy were designated as NPLs, equivalent to 17.1 percent of the country’s GDP. Spain’s banks had an average NPL ratio of 7.1 percent, or 15.8 percent of its GDP. Banks in Cyprus fared even worse, with half of their loans classified as bad, followed by Slovenia (28.4 percent), Ireland (21.5 percent) and Hungary (18.9 percent).

(emphasis added)

€1.1 trillion is certainly a lot of moolah. As the above list shows, as a percentage of total economic output bad loans are astonishingly large in a number of countries. You may also have noticed that Greece isn’t even mentioned, but with more then €90 billion in NPLs, the condition of its banking system relative to the economy’s size is actually in the by far worst in Europe. However, a third bailout is already in the works, so there’s absolutely no reason to worry.

The above is of course just what is officially admitted to. One must not lose sight of assorted “extend and pretend” strategies that are employed in order to mask the true extent of the problems. The creativity of banks and governments in this context is pretty much unlimited.