Euro zone banks continue to reduce soured credit

Euro zone banks continued to record a decline in soured loans, according to the collected data. This is even as the European Central Bank warned that lenders are being complacent in recognizing bad debt. Non-performing loans (NPL) at the bloc’s 114 biggest banks dropped to 422 billion euros. The ratio of bad debt fell to 2.32% as per the ECB’s quarterly data.

Levels of bad debt have stayed unexpectedly low throughout the pandemic. This is because the government moratoria and guarantees allowed firms to meet the technical criteria for servicing debt. Also, the banks were reluctant to push for early restructuring. The underlying performance of the corporate sector has been weakened. The banks have been already warned by the ECB, stating that some borrowers are bound to face payment difficulties, once the government measures are removed.

As per the ECB data, in the first half of the year, the impairment and provision charges were just a third of last year’s level. This is a big boost to profits. Greece had the biggest share of non-performing loans. In Spain, considered among the weaker banking markets in the bloc, the NPL rate actually rose a touch from a year earlier.

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