From Bad To Worse - European Non-Performing Loans In Context

Tyler Durden's picture

Europe remains in a critical state - despite the protestations of its leadership and the indications of its nepotistic bond markets. Unconventional monetary operations have enhanced liquidity, but have done little-to-nothing to solve the real issue - insolvency. As Jassaud and Hesse note, vulnerabilities remain; as reliance on central-bank liquidity is still high especially for banks in peripheral countries. Assets continue deteriorating and remain on banks’ balance sheets, weighing on profitability. Non-performing loans (NPLs) in EU banks continue to soar, drastically outpacing loan growth. Since 2007, loans to the 'real' economy have decreased by 3% while NPLs increased by almost 150%, i.e., €308 billion in absolute terms. This trend shows no sign of reversal, reflecting the continued macro deterioration in parts of the EU and the absence of restructuring (until the new 'template').

During the last European Banking Authority recapitalisation exercise, 30% of the increase in capital ratio was reached by reducing risk-weighted assets, of which one third came from risk-weighted asset ‘recalibrations’ - i.e. from rotations among the peripheral bonds that (while ultimately risky) are deemed risk-free by the ECB.

For a sense of just how absolutely dire the situation is (and entirely unsustainable) across the entire Eurozone, the following chart shows the current ratio of NPL-to-Total-Loans relative to Dec-2007...

As ever, credit creation inflated asset prices and provided the cushion for an increase in liabilities (and never a bubble is seen) but once the bubble in asset prices begins to deflate, reality sinks in and the liabilities remain (large as ever). Thus the central bank inspired cycle of credit boom and bust continues - until, of course, there is no capacity left (and no gold to transfer).


Chart: VoxEU

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Banksters's picture

Banks have bad bets and they want to seize saving accouts?

Why not asset seizure from the banks? Or destroying bond and equity holders.  Oh,they can't fail.  Why?
Because their assets are worth only fractions of what they claim.  If they fail, then all of their phony insurance deals- derivatives and related nonsense blows up and the whole financial crime syndicate goes up with it.  Therefore, the only logical route is to steal from the accounts of accumulated wealth.   To add a heaping stinking pile of feces to this whole plan, is the fact that all the connected will move their capital before it is seized.  Everyone else will get destroyed. 

That brings up an interesting question.  Let's say someone ACTUALLY NEEDS THEIR SEIZED CAPITAL.  Will the state  bail them out?!!!  I bet not.   No, individuals can be destroyed with impunity...

Everybodys All American's picture

When they begin confiscating wealth then whole stock and bond market will begin a spiral down. Nothing will escape that collapse.

kridkrid's picture

The collapse is the collapse. But you are right in that nothing will escape it.

freewolf7's picture

"vulnerabilities remain"


Number 156's picture

'This trend shows no sign of reversal ... how absolutely dire the situation is'

Ive been very pessimistic in my view of NPL in the Euro zone banks, but this is actually worse than I expected.

Even if they started to go after depositors everywhere, they would have no hope, where I thought such a move could buy them time.

rubearish10's picture

Sell gold = offset NPL's. What's the problem? XLF/BK supporting stocks. US Banks look good, sell gold. PUKE!

gjp's picture

From bad to worse is right.  Who cares about NPLs?  You can print whatever you want to make up the difference, and there's never any inflation except in the stock market?  It's magical upside down world!

One would have thought that short stocks, long gold and other commodities would have been a reasonable hedge, but one might now be nearly bankrupt.  How can this be happening?


rubearish10's picture

The disconnect between commodity macro and equity is reaching an extreme of unknown proportion. 

BandGap's picture

Wow, just wow. If the past is any indicator these countries are fucked six ways from Sunday. WTF wilkl it take for any sense to take hold, if indeed this is a consideration. It's almost like they stepped on the accelerator before going over the cliff.

kridkrid's picture

That metaphor works just fine. Any one who understands the nature of the issue won't be surprised. Credit money loaned into existence with interest attached. For the system to continue, more money must be loaned into existence forever. That works for a while, until there is nowhere else to shovel credit. Of course the last gasps are to loan money to anything moving... to include sovereign nations.

No choice, really, but to hit the accelerator from the vantage point of those who profit from the status quo.

razorthin's picture

Oh yeah, they're gonna stop printing soon!

Peacefundamentalism's picture

Two reputable UK bullion dealers suffering from massive demand. cannot offer next day delivery. is not taking any more phone orders due to high demand.

The_Small_Lebowski's picture

Jesus H, would you look at little ol Ireland at the top of the class. Only recently has there been any talk of binning NPLs, especailly homeowner mortages. 

Been trying to tell friends and family for a couple of weeks to get the hell out of irish banks (thanks Reggie Middleton!) - but only my closest take me seriously.

Deposit haircut anyone?  - Just shave it all off mate!

Winston Churchill's picture

Scalping is next on the agenda.

Why settle for hair when you can get a bonus pound of flesh.

Dudeskis's picture

Ireland isn't Cyprus. You think they will haircut the bank accounts without "The boys" doing something? Banks will blow up and I mean this now in a literal sense.

Sandmann's picture

They have already invested the entire State Pension Fund in Allied Irish Bank. How big a haircut do you want ?

fomcy's picture


"Gold Extends Bear-Market Plunge Below $1,400 on U.S. Recovery - Bloomberg, Apr 15 2013 9:08AM"

What recovery?

Dudeskis's picture

Oh you didn't get the memo? That's what we're calling 29mil on food stamps now. A recovery.

Mark123's picture

Stop talking about numbers and stuff....just look at the stock markets.  Right now our valiant financial soldiers are giving all they have to push European stocks green for the day while gold collapses.


May God be with them.  They are all that stands between us and chaos.

fajensen's picture

Nice to see that Nordea puts Denmark on the map.

fomcy's picture

Silver actually didn't break morning low yet.

Bernank printing GOLD futures and selling them naked..

Jason T's picture

Ireland is in deep fried potatoes. 

Overflow-admin's picture

FREE LUNCH RECOVERY!!! Nothing to see there...



Meanwhile, in the world of metals...

orangedrinkandchips's picture

Critical state my ass.....


The "market" sees this as Ren and Stimpy use to....."it's log, it's log, it's big, it's heavy it's's log, it's log, ITS BETTER THAN BAD IT'S GOOD!!"



The Reich's picture

Thanks to Figure 1, I nao know that the US of America are in the EU.

Winston Churchill's picture

The FedRes is a silent partner.

Kirk2NCC1701's picture

Time for another paradigm shift:

EU's real problem is the "NATO curse". Few of these countries would have qualified for EU's economic criteria, were it not for NATO's (Neocon's) geopolitical ambitions. Their crummy performance was heavily discounted politically, so that NATO's borders could move closer to Russia.

Inasmuch Iraq was a very bad call, so was including bad countries to join the EU. Now the chickens have come home to roost.

Ppl are such simpletons, so gullible, so malleable. Sheep!

Sandmann's picture

Not really but the US did lean on Germany to let Greece into the Euro

Sandmann's picture

It is a lovely world: the Banks are insolvent but awash in liquidity. The Households are solvent but illiquid.

Only Politics can create such a phenomenon and think it is progress

Sandmann's picture

It is a lovely world: the Banks are insolvent but awash in liquidity. The Households are solvent but illiquid.

Only Politics can create such a phenomenon and think it is progress

amanda33's picture

The analysis shows the extent to which NPLs have increased as a result of the financial crisis, with consumers and corporates struggling to repay debts on installment non-payday loans. The analysis is based upon publicly available financial data, and provides coverage of approximately 75% of banks within each of seven regions.