Non-performing loans – the intracontinental differences

Economic differences across Europe are reflected in non-performing loan volumes, with southern Europe harder hit than the north. However, banks may still be vulnerable to new waves of NPLs.

Northern Europe has been financially more robust than the southern parts of the continent for decades. The financial crisis’s aftermath, and especially the sovereign debt crisis, is still felt across Portugal, Spain, Italy and Greece. Restrictive fiscal policies, brought on by severe austerity measures, have characterised the economic reality over the last dozen years.

Significant NPL reductions

Looking at the NPL ratio (in relation to the total loan stock), the systematic reduction since 2015 has been considerable. Countries that saw double-digit NPL ratios have managed, together with EU institutions and bodies, to bring these down.

In Greece, NPLs accounted for almost half of the country’s loan stock in 2015. The share is a tenth (4.7%) today. This economic turnaround is a welcome change of pace from the past years of financial distress. Addressing the NPL issue has been one of the key steps to getting the country on the right path, showing how important controlling NPLs is when it comes to economic stability and trust.

As larger economies, France, Spain, Italy, Germany and the Netherlands constitute nearly 84 per cent of European NPL stock. Meanwhile, compared to 2015, Ireland, Portugal, and Greece have a fraction of their previous levels.

Italy has decreased its NPL stock the most. A total of EUR 235 billion has been offloaded since 2015, followed by Greece and Spain at EUR 106 billion and EUR 75 billion respectively. Securitizations of non-performing loans in Italy and Greece have mainly been facilitated through state guarantee schemes.

Concerns remain about the future

The European banks find themselves in a stronger position compared to 15-20 years ago. But they are far from being immune to a new wave of potential NPLs. The full effects of the sharp interest rate hikes are yet to unfold.
Anna Zabrodzka-Averianov, Intrum Senior Economist

During recent years, Europe has witnessed massive credit growth, particularly during the pandemic when governments dished out large subsidies and fiscal support packages to businesses and citizens. This could indicate that a new credit challenge might be around the corner, especially as interest rates continue to increase. If this is the case, addressing the outstanding NPL stock will be of paramount importance to maintain economic stability and growth.

Download our latest Economy in Focus issue

The latest edition was published in September 2023 and takes a closer look at the economic phenomenon of NPLs – non performing loans – how they function and what the future development might look like.