European Banks Sitting On $1 Trillion Of Bad Debt

European banks are sitting on bad debts of 1tn – the equivalent to the GDP of Spain – which is holding back their profitability and ability to lend to high street customers and businesses.
According to a detailed analysis of 105 banks across 21 countries in the European Union conducted by the European Banking Authority (EBA), the experience of Europe’s banks to troubled customers is worse than that of their counterparts in the US.
The 1tn (706bn) of so-called non-performing loans amount to almost 6% of the total loans and advances of Europe’s banks and 10% when lending to other financial institutions are excluded. The equivalent figure for the US banking industry is around 3%.
Piers Haben, director of oversight at the EBA, said that while the resilience of the financial sector was improving because more capital was being accumulated in banks, he remained concerned about bad debts. ‘EU banks will need to continue addressing the level of non-performing loans which remain a drag on profitability,’ Haben said.
Banks in Cyprus have half their lending classified as non-performing while in the UK the figure is 2.8%.

This post was published at David Stockmans Contra Corner on November 25, 2015.