Euro zone banks continue to reduce soured credit

October 6, 2021

FRANKFURT (Reuters) – Euro zone banks continued to record a decline in soured loans in the second quarter, data showed on Wednesday, even as the European Central Bank warned that lenders are being complacent in recognising bad debt.

Non-performing loans (NPL) at the bloc’s 114 biggest banks dropped to 422 billion euros in the second quarter from 455 billion three months earlier and the ratio of bad debt fell to 2.32% from 2.54%, the ECB said in quarterly data.

Levels of bad debt have stayed unexpectedly low throughout the pandemic as government moratoria and guarantees allowed firms to meet the technical criteria for servicing debt and banks were reluctant to push for early restructuring.

But the underlying performance of the corporate sector has been weakened and the ECB has already warned banks that once government measures are removed, some borrowers are bound to face payment difficulties.

Still, impairment and provision charges in the first half of the year were just a third of last year’s level, a big boost to profits, the ECB data showed.

At 14.8%, Greece had the biggest share of non-performing loans but that ratio fell by over half in the past year while in Spain, considered among the weaker banking markets in the bloc, the NPL rate actually rose a touch from a year earlier.

(Reporting by Balazs Koranyi)

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