Bad Loans in Europe Tumble, but They Are Never Fully Gone
Comment of the Day

July 16 2019

Commentary by Eoin Treacy

Bad Loans in Europe Tumble, but They Are Never Fully Gone

This article by Patricia Kowsmann and Margot Patrick for the Wall Street Journal may be of interest to subscribers. Here is a section:

You are pushing out the door the risk, but part of this risk comes back in through the window,” said Massimo Famularo, a Milan-based adviser on bad-loan deals.

The ill-health of Europe’s banks is a drag on the economy and a factor for why the area has yet to fully bounce back from the crisis. When banks retain exposure to bad loans rather than selling them outright, they have less capital to back fresh lending to the economy.

Lending growth has been weak in countries with the most nonperforming loans, or NPLs, such as Italy, Portugal and Greece.

“The sale of NPLs is good for the balance sheets of the banks, but it doesn’t solve the NPL problem in the system,” says Giovanni Bossi, former chief executive of Italy’s Banca IFIS SpA. He estimates only a small portion of the disposed loans has been worked out by their buyers.

Eoin Treacy's view

The nonperforming loan problem in Europe is half the size it was at the height of the crisis. There are two ways of looking at this development. The first is the easy to exit loans have been dispensed with, so the second half must be stickier and, therefore, harder to deal with. The other is that real progress is being made but it is not as quick as many would like.

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