Valdis Dombrovskis pointed out the main challenges for the Eurozone viability. Italy the major concern, German banks with a past of risky attitude
by Emanuele Bonini
Banks in Europe «are stronger and better capitalised» than the previous years, according to the European commissioner for the Euro and the Financial stability, Valdis Dombrovskis. This means the worst is passed. Just theoretically. Risks are in fact not over at all, because of non performing loans. Non-performing loans are all those kind of credits of difficult repayment. It means that financial institutions give money to borrowers who are not in the position to give those money back, finishing to be exposed to the risk of shock due to insolvent debtors. It is not just a matter of isolated cases. On the contrary, that of non-performing loans «is a serious issue we are facing in several Member States», pointed out once again Dombrovskis. Once again because the problem is not a new one, and the story is not an unknown one.
Italy. A Member State with long-date problem is Italy. The country is «in a context of high non-performing loans», as the European Commission underlined in the latest winter economic package. The scale of risk exposure is source of concerns, since «the stock of non-performing loans has only started to stabilize and still weighs on banks’ profits and lending policies». In numbers, the sector’s gross stock of non-performing loans stabilized only recently at around 329 billion Euro. In practice, Italy lives in «persistent uncertainty» related to the adequacy of loan loss provisions and capital buffers, given the existing high stock of non-performing loans and banks’ limited ability to absorb losses in a context of subdued profitability. Italy is the third economy of the Euro area, and spill-over effects need to be avoided, according to the European Commission, worried for the viability of the Member States. Italy was identified as having excessive macroeconomic imbalances relating to its high public debt and weak external competitiveness in a context of weak productivity growth and the high level of non-performing loans on banks' balance sheets.
Germany. Not only Italy. Problems with the sustainability of the banking sectors are in Germany, too. Also in this case, the are no new stories to tell. In time of «bail-out» regime – the rules allowing bank recovery with public money – the bundesrepublik spent tens of billions Euro in State aids granted in order to rescue national banks. Considering that Germany alone account for the 20% of the EU GDP, it is easy to understand why at the eyes of the European Commission «due to its economic importance and strong integration in the value chains in the EU, Germany is a source of potential spillovers to other Member States». According to the latest TNI report, in the past banks in Germany, from the semi-public Landenbanken to the currently struggling giant Deutsche Bank, made extensive use of financial products which were revealed to be a failure, and therefore such banks required extensive bail out packages. Now, after the creation of an ad-hoc €480 billion fund – twice the GDP of Greece – to secure its banking sector, and after a net loss of up to €38 billion before 2015, the German banking sector is medium-sized and relatively well capitalised. But bad habits are difficult to be changed, and Germany got bad attitude. German authorities behaved badly in disciplining national banks, and that such banks adopted risky practices because they expected the state to step in if necessary, as has happened in the past.
Banks in Europe «are stronger and better capitalised» than the previous years, according to the European commissioner for the Euro and the Financial stability, Valdis Dombrovskis. This means the worst is passed. Just theoretically. Risks are in fact not over at all, because of non performing loans. Non-performing loans are all those kind of credits of difficult repayment. It means that financial institutions give money to borrowers who are not in the position to give those money back, finishing to be exposed to the risk of shock due to insolvent debtors. It is not just a matter of isolated cases. On the contrary, that of non-performing loans «is a serious issue we are facing in several Member States», pointed out once again Dombrovskis. Once again because the problem is not a new one, and the story is not an unknown one.
Italy. A Member State with long-date problem is Italy. The country is «in a context of high non-performing loans», as the European Commission underlined in the latest winter economic package. The scale of risk exposure is source of concerns, since «the stock of non-performing loans has only started to stabilize and still weighs on banks’ profits and lending policies». In numbers, the sector’s gross stock of non-performing loans stabilized only recently at around 329 billion Euro. In practice, Italy lives in «persistent uncertainty» related to the adequacy of loan loss provisions and capital buffers, given the existing high stock of non-performing loans and banks’ limited ability to absorb losses in a context of subdued profitability. Italy is the third economy of the Euro area, and spill-over effects need to be avoided, according to the European Commission, worried for the viability of the Member States. Italy was identified as having excessive macroeconomic imbalances relating to its high public debt and weak external competitiveness in a context of weak productivity growth and the high level of non-performing loans on banks' balance sheets.
Germany. Not only Italy. Problems with the sustainability of the banking sectors are in Germany, too. Also in this case, the are no new stories to tell. In time of «bail-out» regime – the rules allowing bank recovery with public money – the bundesrepublik spent tens of billions Euro in State aids granted in order to rescue national banks. Considering that Germany alone account for the 20% of the EU GDP, it is easy to understand why at the eyes of the European Commission «due to its economic importance and strong integration in the value chains in the EU, Germany is a source of potential spillovers to other Member States». According to the latest TNI report, in the past banks in Germany, from the semi-public Landenbanken to the currently struggling giant Deutsche Bank, made extensive use of financial products which were revealed to be a failure, and therefore such banks required extensive bail out packages. Now, after the creation of an ad-hoc €480 billion fund – twice the GDP of Greece – to secure its banking sector, and after a net loss of up to €38 billion before 2015, the German banking sector is medium-sized and relatively well capitalised. But bad habits are difficult to be changed, and Germany got bad attitude. German authorities behaved badly in disciplining national banks, and that such banks adopted risky practices because they expected the state to step in if necessary, as has happened in the past.
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