Europe's EUR 500 Billion Ticking NPL Time Bomb

Tyler Durden's picture

Europe's non-performing loan problem is such an issue that there is increasing bluster that the ECB may take this garbage on to its balance sheet since policymakers realize that bad debts and non-performing loans (NPLs) reduce the capacity of banks to lend, hindering the monetary policy transmission mechanism. Bad debts consume capital and make banks more risk averse, especially with respect to lending to higher risk borrowers such as SMEs. With Italy (NPLs 13.4%) now following the same dismal trajectory of Spain's bad debts, the situation is rapidly escalating (at an average of around 2.5% increase per year).

As we discussed in detail here, the bottom line is that at its core, it is all simply a bad-debt problem, and the more the bad debt, the greater the ultimate liability impairments become, including deposits. As we answered at the time - the real question in Europe is: how much impairment capacity is there in the various European nations before deposits have to be haircut? With Periphery non-performing loans totaling EUR 720bn across the whole of the Euro area in 2012 and EUR 500bn of which were with Peripheral banks, it seems the Cyprus deposit haircut non-template may indeed become the key template.

Simply put, the greater the unemployment the more the strain on banks to generate "profits" by any means possible (GGBS?) to cover the capitalization shortfall from NPLs until at some point liability haircuts have to begin...

Non-performing loans as % of total loans across the Euro area

Unemployment rates across Euro area countries

Via JPMorgan:

It is not surprising that the periphery is exhibiting a rising pattern in terms of NPL ratios. What is worrying is the speed of increase, at 2.5% per year. Within the periphery, Greece is the outlier with a NPL ratio of 25%, and no signs of abating yet. Ireland follows with a NPL ratio of 19%. Italy (at 13.4%) is above Spain and Portugal (at close to 10%)...


The German divergence is making the task of the ECB very difficult both in terms of setting monetary policy for the whole region, but also in terms of dealing with an impaired transmission outside Germany. Draghi clarified in its latest press conference that it is not the ECB’s role to clean up banks’ balance sheets, meaning that the ECB is unlikely to deal itself with the €500bn large non-performing loan problem in periphery.

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Dr. Engali's picture

500 billion? Pffffffftttt Child's play, the Bernank can clean that up in six months.

yogibear's picture

Bubble Bernanke can clean it up in a keystroke. A couple of seconds at the most. Then move it to the off-balance sheet.

Probably trillions already sitting in that nonperforming area.

GetZeeGold's picture



Will trade a hardly used detonator for gold........let me know.

Suppressor's picture

I'll say it first..Bullish!!!!!!!!!!!!!!!!

andrewp111's picture

Right now everything is bullish!!!

Suppressor's picture

I'll say it first..Bullish!!!!!!!!!!!!!!!!

ShrNfr's picture

Yes, but which of your two personalities was first?

krispkritter's picture

That one! ----> <-----

OT: drone, drone, drone your boat, gently cross the seas, merrily, merrily, merrily, merrily, Freedom is not for the Free!...

DeadFred's picture

On Zero Hedge only Tyler is allowed multiple personalities.

The non performing loans will be a non-issue until an issue is needed, then suddenly everyone will be concerned. In my limited experience news follows the charts not the otherway around. The charts say it may become an issue soon. The EURUSD closed today about 50 pips above the neckline of a head and shoulders pattern, not a good thing considering how often weekends have unpleasant surprises. Target is 1.21 if it breaks.

Peconic Bay's picture

If I am reading this chart correctly, it looks like 17% of the total Euro area loan portfolio is NPL. With the high level of leverage european banks have, I am surprised they haven't already collapsed.  Are there people with expertise on european banks that can shed light on these numbers compared to the thin capital bases in these banks?

Osmium's picture

If Bernanke ADMITS to $85 billion per month, just imagine how much he is printing and giving away to Europen banks that he does not admit to.

andrewp111's picture

As long as their ultimate regulator (the ECB) shows forebearance, the insolvent EU banks can survive any amount of NRLs as long as the bank  has enough revenue coming in to make the payments it must other words as long as the bank performs on its own loans. Most of the bank's own borrowing is in the form of deposits. As long as the sheeple don't panic, the bank is safe. The best way of forcing the issue is to increase the bank's required payments by convincing the ingnorant and complacent sheeple to start withdrawing their deposits en masse. In other words, start a


Ghordius's picture

"as long as the bank  has enough revenue coming in to make the payments it must make" = solvent bank*

(*) functioning as designed in a fractional reserve fiat currency environment

buzzsaw99's picture

just pretend they are performing and voila bonus time again

fonzannoon's picture

Have you guys noticed Bruce Krasting has mailed it in for a while now? I really enjoyed his take on currency moves. He loved to try to rationalize the fed moves. I think I've seen one article from him in the last month and it was a throw away write up on S.S. Yet here we are with the end of QE debate on the table and the Yen blowing up and he is nowhere to be found. Any theories? Bruce, you out there?

Hulk's picture

Its spring and he has a farm...

Yen Cross's picture

  This thing is ready to breakout. Any suggestions?


fonzannoon's picture

Yen all I know is they have to get the Yen/USD down to 100 again. It is wreaking havoc right now.

Yen Cross's picture

      Drop your phone in the toilet next week Fonz. The rubber band has reached maximum torsional strength.

Wile-E-Coyote's picture

maximum torsional strength.

I think tensile strength might be better i.e. as in streching. Torsion is a twisting moment, Just saying!

pagan's picture

"ECB may take this garbage on to its balance sheet "

It will probably happen. The dumb Eurocrats have showed that they are prepared to go all in to save the Euro-project and if german taxpayers are prepared to pay. Well, let them.

Ghordius's picture

America did it in the first years, remember Hank Paulson? How much did it cost? 2T?

Marco's picture

The alternative is the german taxpayers all going out of a job. Germany is caught in a mercantilism trap ... just like China. The rich don't want to let wages rise, they'd rather subsidize consumption in foreign trade deficit countries.

css1971's picture

So... banks are lending to bad credit risks because...? All the good ones are already encumbered.

Moving non performing loans on to the central bank changes this ... or ... does it simply allow the bank to lend out again to the same bad credit risks so they can default many times instead of just once.

I've pointed out before default is inflationary. So the new ECB strategy is to encourage serial defaults. Printing money by the back door.

You may call it a time bomb. I call it the solution to the problem.

Atomizer's picture


Do you remember Lehman Brother & Bear Stearns? Who was consolidated by TARP (Taxpayer’s funded . cough.. borrowed monies). Chase is about to get wiped away. I don’t love Jamie Dimon one bit.. Give him a call. This is another set-up to reduce banking options thru the G7 clan. Not a fucking joke, ask him yourself. Once you understand, make it go viral..

Second answer:

When you’re looking at household costs, don’t use the monthly rate, rather daily. Determine if you’re expenses are Motel 6 or Hilton daily rate.  

Let’s say you’re paying a 30 year mortgage @ $2700/ month. Your peasant stay is $90/month less compounding banking fees. Add the primary dealer rate spit into different banking Tier systems. So you go out and find different usury rates. It can range from 3 – 7 %  based on your FICO debt level.

Do you see the obvious problem? Basel III will not correct this issue, if fact it will make borrowing much harder. When the demand for borrowing dries up, the central banking fuck sticks will have to answer to all the sidelined monies evaporated while parked investor monies are the bank account.  MSM is trying to bring bank account cash into the equities joke. 


Read that cryptic message again 

all the sidelined monies evaporated while parked investor monies are the bank account. That is your investigative rabbit hole clue. Dig deeper, your getting closer. Not hot, but closer.

q99x2's picture

Bernanke print that 500 Billion up in 6 months. What's the problem, all those countries over there and they can't counterfeit a little fiat

tao400's picture

These just take the loans on the balance sheet, let them go to maturity, if they don't pay back on the loans, the print money to cover the amounts of the loans. this could go on for years and years.

Atomizer's picture

Jamie Dimon was propped  & now has been throw under the bus. Jamie didn’t realize our warnings, today he does. Shortly, I will repost the figureheads responsible.

You can hone in on the terrorist mob agenda ringleaders who Janet Napolitano [DHS] signed off as a National Security assets. The dam has broken, once you see the international figure heads involvement. You can follow the money trail leading back to Obama. This was posted 6 month ago. Key Global figureheads.. Kisses

Great Depression Trader's picture

Pre 2007 NPLs mattered. However, in the age of the Central Bank losses no longer matter. Any and all "losses" can be absorbed by not only the central banks but the commercial banks themselves. Simply, savers get zero interest while credit card borrowers pay 16 percent. Mark to model accounting helps massage losses with creative numerology. And when the losses pile up the CBs just "buy" the NPL where it then disappears down a hole of nothingness.

At some point all the currencies will hyperinflate into nothingness as well. Until that time comes enjoy the boom :)

yogibear's picture

Bernanke and the Fed should hold magic shows.

How to make trillions through printing and how to make trillions of nonperforming debt disappear in seconds.

ak_khanna's picture

A majority of individuals, corporations and governments have spent years of their future incomes by taking on debt. Now it is time to pay the bill. So now for years to come they have to service their debts on reduced incomes. Moreover all the borrowings by the governments are being spent to save the banks instead of focusing on job creation which is the only way the world economy can recover. There is unlikely to be an economic recovery in the foreseeable future because all the efforts of politicians, government, central banks etc are focused on saving banks instead of targeting job creation.

Joe A's picture

That is why they want a banking union and Eurobonds. Banking union would also be useful to transfer Germany's and core NPL to the periphery. Bullish!

smacker's picture

I'm sure that at least some of the rise in NPLs is directly due to Zirp and the malinvestment it was always bound to cause. ZH and many commenters spotted this a long time back.

Central banks "making rods for their own backs" and "unintended consequences" come to mind.


Oh dear...what shall we do about it?

Why yes, let's take these bad debts onto the back of taxpayers!!!

THE DORK OF CORK's picture

The last thing Europe needs now is free banking money.


Deposits need to be turned into national equity money and the loans considered null & void.

Sandmann's picture

Ever since Germany did an LBO of the GDR the credit base of the Euro economy has been out of whack and the EMS took the strain forcing Britain and Italy out rather than Germany revalue. That is the basis of the problems in the EuroZone.

LBO the GDR and make other EU economies in EMS pay for German Unification so German exports would hold up. The deflationary impact crippled weaker economies and broke up EMS which is why they are desperate to hold the Euro together.

The Banks needed a rigid Monetary System to make their goal of a deep and wide capital market to challenge New York secure, but Euro companies depend less on bond financing and more on bank financing so the liquidity had to be in the banking system and the banks ended up doing the wholesale borrowing in the bond markets flowing the proceeds through the bank multiplier rather than bilateral bonds.



ebworthen's picture

The bankers deserve garbage, tripe even, or hanging, or drawn and quartered.

"Austerity" takes on a whole new meaning!

THE DORK OF CORK's picture


It goes back much further then 1989.............

There is a deep monetary problem with the Euro............its not fiat.


It goes back to 1979 /80 in my opinion.


Ireland entered a massive deflation back then when we left the Sterling peg to join the big club.


The rational domestic economy never was kept afloat via multinational transfers , euro farming transfers and credit hyperinflation.

We became a Imperial market for the cores products.

Wage inflation in Ireland (1970s) made domestic goods cheap relative to cash flow but external goods & energy expensive.


The Germans & French could not make any money out of us until they destroyed our economy post 1980.


With the help of Quislings in Ireland wage share of GDP went from 70% of GDP down to the mid 40 % range.


Obviously you get malinvestment under such conditions as there can be no rational demand signal.



yogibear's picture

Slovenian Banks Cause a Downgrade to BBB+ by Fitch

The news from Europe and the so-called successful European Union continues on a dire path, now with the tiny nation of Slovenia following in the footsteps to slavery and a Panzerbank march to seize control of the nation’s wealth. The economic Blitzkrieg that Germany’s favorite Marxist, Herr Merkel, is executing would make Rommel jealous as now Slovenia is in precisely the same danger as Greece was in 2009. This is not a surprise as I warned on March 27th of this year in the article “Slovenia is the Next Crisis for the Dysfunctional European Union“, that indeed Slovenia was next on the list of European nations to fall. Of course Hungary still has a chance to beat them to the punch.