12/04/2018 11:55
The international credit rating agency DBRS has expressed the point of view that without new measures to assist with the reduction of non - performing loans (NPLs) banks with high NPLs will remain in Europe for “some time” and has pointed in particular in the direction of Greece and Cyprus.
In a commentary on the matter, it uses EBA data as at end – June 2017 according to which “there were still 59 HNBs out of 132 Banks or 45% of the sample, totalling EUR 629 billion of gross NPLs.”
“The effort required for those banks to reach NPL ratios below 5% is a reduction of 54% of their current stock of NPLs or €340 billion, assuming constant balance sheets,” it says.
Moreover, it adds, “there is a wide disparity in the level of the reduction required, with High NPL Banks in need of a reduction of NPLs of up to 90% in Cyprus and Greece compared to a reduction of only 5% in France.”
DBRS has estimated that “whereas it could take European banks around 4 years on average before the NPL ratios are below 5% at the current pace of reduction, there are some countries, like Greece or Cyprus, where the pace of reduction combined with the high stock of NPLs suggests that it will take a long time to clean up their balance sheets.”
According to DBRS’ projections it would take Cyprus banks 7 years to adequately deal with its NPLs and Greece close to 10 years. They are followed by Italy (5 years), Poland (4 years), Ireland and Belgium (about 3 years), Spain and Slovenia (2 years) and France (less than a year).
The credit rating agency “sees as the key measure to tackle the stock of NPLs the publication of quantitative expectations or targets. “
It expects that NPL targets for banks with high NPLs “will remain confidential for the moment,” but points to the ECB’s annual report on March 25 2018 in which it explains it focuses on banks’ level of ambition over a three year horizon, the credibility of their strategy as well as governance aspects such as, among others, the level of monitoring and level of resources allocated by the bank to work out the loans.