EUROPEAN banks’ bad loans have more than doubled since 2009 to stand at about €1trn at the end of 2014, according to an International Monetary Fund (IMF) paper released on Thursday.
High levels of non-performing loans (NPLs) to companies, particularly small and medium-sized firms, were dampening credit supply and tying up bank capital that could otherwise be used to increase lending.
In euro area countries, the stock of bad loans reached €932bn, or 9.2 per cent of euro area gross domestic product, at the end of 2014.
Cyprus’ debt metrics fared the worst in the EU. By the end of last year, NPL ratios reached exceptionally high levels, topping 40 per cent.
The Gross Non-Performing Exposure (NPE) on the island was calculated at 48 per cent of GDP. Ireland fared only slightly better, with an NPE of 40.9 per cent of GDP.
Cyprus was among a group of countries – including Italy, Greece and Serbia – where NPL ratios remained flat or deteriorated.
Only a handful of countries, including Estonia and Germany, recorded a decline in the share of NPLs to total assets compared with their highest post-crisis levels, according to the IMF discussion note, titled ‘A strategy for resolving Europe’s problem loans’.
The IMF paper recommended better oversight to encourage banks to write off or restructure impaired loans; reforms to enhance debt enforcement and insolvency frameworks and improvements to market infrastructure to allow distressed debt markets to develop.