European Banking Authority: Decrease of NPL, but bank assets still in risk

Capital levels and liquidity of the European banks remain strong and the sector’s profit is increasing, shows the latest report Risk Dashboard, published by European Banking Authority (EBA). In the last quarter of 2022 non-performing loans (NPL) stayed stable – 1.8%, and the Stage 2 loans fell slightly by 0.2 percentage points from September to 9.4%. Stage 2 loans are less than 90 days delayed, NPL are more delinquent. 

NPL decreased in all main segments – average 3% for the quarter and 9% year-to-year. 

Thus, their value at the end of the year is EUR 357 billion. The coverage of overdue loans decreased slightly to 43.4%. High interest rates, persistent inflation and macroeconomic uncertainty could weigh on economic growth and unemployment, which in turn could affect bank asset quality, the EBA noted. According to Eurostat, the number of companies declared bankrupt has risen to a new peak at the end of 2022.

Loans in an expiring moratorium and those related to publicly guaranteed schemes due to COVID-19 decreased from EUR 583 billion to EUR 546 billion. Overdue loans among them are also falling – only 6.3% are delayed, and 20.9% are Stage 2. 

Total bank assets shrank in the last quarter by about 7 percent. Exposures for households remain unchanged, and those for non-financial companies, i.e. real business, have risen slightly compared to September 2022. The main reason for the growth is commercial real estate loans. In this segment, non-performing loans decreased more than average from 4.1% to 3.7%. However, there is growth in certain sectors of corporate lending. Among them are health services and the social sector, with the biggest increase. The trend is similar in several countries – three main sectors report slight growth – agriculture, mining, as well as financial and insurance activities. 

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