European banks face significant risks from non-performing loans
New analysis from Linklaters estimates that since November 2014, when the European Central Bank (ECB) implemented its Single Supervisory Mechanism (SSM), non-performing loan (NPL) volumes across the banks supervised remain high, reducing marginally from €841 billion to €826 billion
According to Linklaters, banks have been announcing plans to offload NPL portfolios and demand continues to be significant from investors with at least €40 billion of distressed funds raised to buy these portfolios. But the research suggests that NPLs in certain countries are steadily increasing, causing a drag on banks’ profitabilities and market confidence.
Andreas Steck, a regulatory partner at Linklaters, comments: “In its first year of operation, the SSM has made good progress in building trust in the European banking system. The comprehensive assessment helped identify problems on balance sheets and provided the market with clarity on the scale of non-performing loans. But these continue to be a significant on-going issue, particularly in Southern European markets.”
Apparently, European banks would require a further €400 billion of NPL sales to match US banks.