Thursday 19 October 2017

Bad debts in European banks rise by €100bn in a year to hit €1.2 trillion

A man walks past Danske bank branch
A man walks past Danske bank branch
Donal O'Donovan

Donal O'Donovan

EUROPEAN banks are now sitting on €1.2 trillion of bad or so-called 'non-performing' loans, including over €100bn of Irish soured lending.

The amount of problem debts sitting in European banks is up nearly €100bn in just 12 months, according to research from PwC.

The more than €100bn of bad loans held by banks here means that Ireland is one of the six worst-affected economies in Europe.

Only the UK, Germany, Spain, Italy and France have similar totals, but all are much bigger economies than Ireland.

The latest rise in sour loans was driven mainly by increases in Italy, Greece, Spain and Ireland, according to PwC.

Further write-offs are expected as boom-era lending continues to generate fresh losses.

"Aggregate levels of non-performing loans could continue to rise over the coming years, adding further to the already buoyant portfolio market," according to Aidan Walsh, a partner at PwC in Dublin.

There will not be any meaningful reduction in the volume of soured loans in Europe in the short term, he said.

PwC tracks the volume of non-performing loans and the growing market among investors for the distressed assets.

US investment funds dominate the buying of those problem loans, in many cases bundled up into large portfolios or 'books'.

In Ireland sales by so-called 'exiting banks' – lenders that have pulling out of the market here – have dominated the trade, including Lloyds Banking Group, which has sold off property loans at just 10 cent in the euro.

Significant sales are expected to continue as NAMA steps up its disposal of Irish assets next year and the liquidation of IBRC draws to a conclusion.

Analysts also anticipate significant sales by Danske Bank and potentially Ulster Bank next year.

Ulster Bank has avoided loan portfolio sales to date but is under pressure to slim down its Irish balance sheet next year.

Danske Bank is expected to sell assets after announcing plans to exit much of its Irish business over the next year.

Irish Independent

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