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EU Banks | Non Performing Loans hit €1 Trillion

EU Banks | Non Performing Loans hit €1 Trillion

According to the consultation document of the International Monetary Fund that was recently published, non-performing loans (NPL’s) of European banks have more than doubled since 2009 and their value has reached nearly one trillion euros at the end of 2014.

The high levels of loans which are not serviced and have been granted to companies, especially small and medium enterprises, are making things more difficult for the banks which need to commit more bank capital (capital adequacy) which otherwise could have been used for new loans.

“Given the urgent need to support the still uncertain recovery in Europe, the solution to the problem of non-performing loans in order to promote new loan lending has macroeconomic prime importance,” the IMF staff noted in their document.

Non-performing loans are at a very high levels especially in the southern part of the eurozone, where the business debt is a “toxic” problem, as well as in eastern and southeastern Europe, the international financial organization stated.

In the eurozone the total value of non-performing loans amounted to 932 billion euros or about 9.2% of gross domestic product (GDP) of the euro area, at the year end of 2014.

It is reminded that in Greece the nonperforming loans have surpassed 100 billion., especially after the imposition of capital controls.

Only a few countries, such as Estonia and Germany, recorded a decrease in the proportion of non-performing loans over the total assets of the banks after being compared to the highest levels at which they (NPL’s) reached after the outbreak of the economic crisis, according to the IMF.

By the end of last year, the ratio of non-performing loans reached at extremely high levels in Cyprus, where it exceeded 40%, and in Greece, where it was 35%. However, in Ireland and Spain, the ratio of NPL’s to total bank assets began to decline in 2014.

The IMF suggested better monitoring of the sector and to encourage banks to mark down, to restructure or even to write off non-performing loans. Also the countries need to promote reforms in order to improve bankruptcy procedures and market infrastructure in order to enable the loan sector to grow again.