Bank Bail-In Risk In Europe Seen In 5 Charts

– Nearly €1 trillion in non-performing loans poses risks to European banks’

– Greece has highest non-performing loans as a share of total credit

– Italy has the biggest pile of bad debt in absolute terms

– Bad debt in Italy is still “a major problem” which has to be addressed – ECB

– Level of bad loans in Italy remains above that seen before the financial crisis

– Deposits in banks in Greece, Cyprus, Italy, Ireland, Czech Republic and Portugal most at risk from bank bail-in

Editor: Mark O’Byrne

As reported by Bloomberg this week in an important article entitled ‘Five Charts That Explain How European Banks Are Dealing With Their Bad-Loan Problem’:

For European banks, it’s a headache that just won’t go away: the 944 billion euros ($1.17 trillion) of non-performing loans that’s weighing down their balance sheets.

Economists say the pile of past-due and delinquent debt makes it harder for banks to lend more money, hurting their earnings. European authorities are prodding lenders to sell or wind down non-performing credit, but they’re split on how to tackle the issue, and some investors are disappointed by the pace of progress.

There are various ways of calculating soured loans. The European Central Bank advises that non-performing asset indicators should be interpreted with caution because the definition of impaired assets and loss provision differ between countries. The data used below refers to domestic banking groups and standalone banks only, and excludes foreign subsidiaries and controlled branches.

 “The data for the Czech banking sector consist of the banks that represent only 6 percent of credit extended by the banks operating in the Czech Republic,” the central bank said by email.

Here are five charts (above and below) using the ECB data that help explain the non-performing loan issue and how banks are tackling it.

The problem is particularly acute in the countries that were hit hardest by the sovereign debt crisis. Greece, which has yet to exit its bailout program, tops the list of non-performing loans as a share of total credit, while Italy has the biggest pile of bad debt in absolute terms.

Italian banks have fixed goals for shrinking their bad credit levels by selling portfolios or winding down loans. Intesa Sanpaolo SpA, the country’s biggest bank by market value, got a head start on its rivals two years ago and plans to accelerate the reduction of non-performing loans, Chief Executive Officer Carlo Messina said last month. He says other Italian banks “are doing the right job” and should make further progress this year.

Italy amassed its pile of non-performing loans during years of little or no economic growth. The problem is compounded by the country’s legal system, where it takes lenders longer to liquidate collateral than in many other countries. Italy overhauled its bankruptcy rules in October to make them quicker and more efficient.

European banks overall have cut their non-performing loans by more than 280 billion euros since the end of 2014. The European Central Bank, which supervises most of the bloc’s big lenders, says bad debt is still “a major problem” which has to be addressed lenders while the economy performs well.

The flow of new bad loans is declining in Italy