Euro zone: how much are the bad debts? – EconomyMorning


The European banking sector remains extremely fragile – while bad debts are increasing: they could drop from € 500 billion in mid-2020… to € 1,400 billion at the end of 2021. And French banks are not the best placed…

At the end of the year, the ECB (European Central Bank) and the EBA (European Banking Authority) partially lifted the freeze on the banking sector in the euro zone in terms of dividends and share buybacks.

This easing is a sign that the European monetary authorities consider that the level of uncertainty about economic activity is declining. However, they do not hide the fact that they have a huge stone in the shoe.

The ECB is worried about a new record of bad debts in 2021… while the stock of bad debts of 2008 has still not been purged!

Hang on to your table: as of October 26, the ECB was considering a possible wave of defaulted loans that could amount to € 1,400 billion in 2021. To put things in perspective, let us specify that this would be a level never reached, not even after the 2008 crisis, since non-performing loans had then peaked at just over € 1,000 billion..

It’s spectacular …

To use the words of the ABE itself, as reported by the site Les Echos-Investir on December 15:

“Economic uncertainty remains, profitability has never been lower, and there are several early signs of deteriorating asset quality. “

Bad debts everywhere

In detail, out of the 130 European banks examined at the end of June 2020 by the banking regulator, the total of “level 3” bad debts amounted to € 500 billion (i.e. -10% over one year). It remains a good performance, knowing where we come from.

The stock of bad debts resulting from the 2008 financial crisis is therefore still far from being settled. The echoes give us a little idea of ​​the countries where these last layers of rot are located:

“The amounts having melted in recent years in Italy, it is in France that we now find the largest contingent, with € 127 billion on the counter. “

Cock-a-doodle Doo ! Not very surprising when we know that French non-financial companies are indebted to a level almost as high as their Chinese counterparts …

That’s not all.

To complete the picture, it should be added that at the end of June 2020, € 870 billion in loans to households and businesses were under moratorium. I know that we are living in times when the exceptional tends to become the norm, but deferred payments cannot be forever …

On November 5, 2020, the ECB officially asked banks to “prepare for the worst”

Anyway, the real problem in the eyes of the EBA is for the moment the € 1,200 billion of “level 2” receivables, that is to say those that are still reimbursed normally but could not stay that way for long.

This compartment of financial decay is up 23% year on year. Hence this kind of apocalyptic advice formulated last November 5 by Andrea Enria, president of the supervisory board of the ECB and former president of the EBA (2011-2019).

Debt payments could in fact skyrocket when public policies to support households and businesses stop. I let you imagine the damage in the event of a third wave in a country where vaccinations are progressing at a rate that oscillates between that of the slug and the snail …

Recall that according to the latest figures from the Institute for International Finance (IIF, November 18, 2020), the European financial sector is one of the most indebted in the world (126.2% of GDP in Q3 2020). Like the British (205.4%) and Japanese (188%) banks, it contributes to exploding the world average, which stands at 89.5% “only”.

The French financial sector, with 108% debt in relation to GDP, is between the European average and the American average (87%).

Which countries in the euro zone are the most affected by bad debts?

In mid-2020, relative to the size of the national banking sectors, bad loans were particularly important in Greece, Cyprus, Italy, Malta, Ireland and Spain. The Hexagon arrived a tad below the average for the Eurozone.

In terms of stocks, the situation is no longer the same. Here, unfortunately, I only have figures from June 2019 to offer you.

Non-performing loans by country in the euro zone in June 2019

NB: NPL = non-performing loans, non-performing loans

As you can see, France was in second place at the time (€ 124 billion in non-performing loans), behind Italy.

In December 2018, it was within BNP Paribas that non-performing loans were most concentrated in France.

Breakdown of non-performing loans within the 6 largest French banking groups as of December 2018

Will you take back a ladle of connivance?

To sum up, we therefore have an ECB which asked the commercial banks at the beginning of November to “prepare for the worst”, before inviting them a month later to resume. at the same time dividend distributions and share buybacks. It just goes to show that France does not have a monopoly on schizophrenia …

To go beyond psychiatry, allow me to share with you this explanation proposed by tweeters Anice Lajnef:

“While in the past the banks made capital increases in times of crisis to bail out their shareholders, today the ECB allows banks to do the opposite: distribute cash in the form of dividends, and buy back shares […].

Remember that until 2009, in the old capitalism, where central banks more or less respected the free market, shareholders had to bail out banks in times of crisis. The shareholders were solicited during capital increases. Of course, the dividend was greatly reduced in these periods, with an incentive to receive it in the form of shares. […].

Since 2010, the ECB has intervened in place of shareholders to save the banks which would collapse without this aid. Not only do shareholders no longer take their responsibilities, but in addition, they risk receiving dividends while the European banking regulatory authorities announce the worst for 2021. Banks have the privilege of having placed their former members in the highest monetary authorities. collaborators. “

Recall that the appointment of François Villeroy de Galhau at the head of the Banque de France in November 2015 had raised an outcry. I imagine that you will not be surprised if I tell you that the former Deputy CEO of BNP Paribas (2011-2015) pleaded in favor of the partial lifting of the freeze on dividends, in order to preserve “the attractiveness of financial institutions for investors ”.

There remains a burning question: if the level of uncertainty about economic activity is declining as indicated by the ECB and the EBA… and if French banks are in such good health as claimed by the French Banking Federation… why devil then all these beautiful people are active there for the establishment of bad banks ?

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