A CLOSER LOOK AT NON-PERFORMING LOANS
The data contained in this publication has been compiled from publicly available information released by the European Central Bank, European Commission, Eurostat, the European Banking Authority, national competent authorities and members of the European Banking Federation. Unless otherwise noted, all graphs and tables have been produced to illustrate the figures mentioned in the relevant chapters.
Due to rounding, figures presented in the charts throughout this document may not sum.
The global financial crisis has seen a strong uptake in non-performing loans (NPLs) in banks’ balance sheets leaving policymakers worldwide concerned by this challenge. This trend has been exacerbated for some countries by the Euro Area crisis, particularly in Southern Europe, resulting in an EU-wide peak NPL ratio of 7.5% in 2012.
However, NPL ratio trajectories point to a significant decline across the European Union which can be attributed to enhanced loan selling activities of banks in recent years. In fact, as of 2017, the ratio for the EU stood just below the world average of 3.74%, at 3.7%, which suggests that NPLs are no longer a specific European problem.
At end-2017 the largest share of non-performing loans (€329 billion) is found in the category of Group 1 countries which includes major economies such as France, Germany and the UK. Although a large volume in aggregate numbers, the ratios are considered low and not uncharacteristic of the typical functioning of an economy. In Groups 2 and 3, nearly half of the NPL amount (€237 billion) is provisioned, meaning that a significant part has already been absorbed by banks.
Further an additional chunk of €266 billion contains either collateralized NPLs or non-covered NPLs accumulated in Group 2 and 3 countries. It is estimated that the real problem to tackle is a portion between €150 billion and €200 billion, which are those neither provisioned nor collateralized. In the end, the remaining amount is less than one fourth of the current NPLs stock.