Non-performing Loans (NPLs) are especially high in economies with high levels of unemployment and small and medium-sized enterprises, which suffered disproportionately during the crisis. According to Luxembourg Wort, Germany is pushing for higher targets for the sale of NPLs by European lenders. The main argument is that NPLs prevent banks from lending, holding back growth.
Currently, EU banks have accumulated an estimated €793bn worth of bad loans, a problem that is particularly acute in Greece, Italy, and Portugal. The European Central Bank is being pressed to revise targets and set new deadlines. The ECB provides banks with a two-year target plan, allowing them to provision fully against the potential loss on unsecured bad loans.
Nonperforming loans in Greece make up to 46.7% of the banks’ loan portfolio, followed by Portugal at 17.8% and Italy at 12.3%.
Size matters, as Italy is the third biggest economy in the Eurozone and has amassed debt that is systemically significant, to the tune of €221bn, by far the highest in Europe.
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