European banks stuck with $1.3 trillion of bad loans: KPMG

Business Monday 31/October/2016 13:41 PM
By: Times News Service
European banks stuck with $1.3 trillion of bad loans: KPMG

London: Eight years after Lehman Brothers’ collapse sparked the financial crisis, Europe’s banks still have 1.2 trillion euros ($1.3 trillion) of non-performing loans and will probably be stuck with them for decades to come, according to KPMG.
Anemic economic growth across the region is making it harder for lenders to off-load toxic assets, hurting profitability while banks also come under pressure from tougher capital rules and fines for misconduct, London-based KPMG said in a report published on Monday. Firms could take "decades rather than years” to reduce their exposures, hampering profitability.
European lenders are battling to cut soured loans as they face evaporating income from lending amid negative interest rates from the European Central Bank (ECB). Net interest margins, the difference between income from lending versus cost of funding, average about 1.2 per cent in the region compared with about 3 per cent in the US, according to KPMG.
"Reversing the profitability of European banks is not a lost cause but it will certainly be a lot of hard work,” Marcus Evans, a partner at KPMG’s ECB office, said in a statement. "It’s clear that across Europe banks are still grappling with the new world of low, or negative, interest rates and mounting capital and regulatory costs.”
The total value of toxic loans in Europe has surged since 2008 from about 1.5 percent of lending to more than 5 per cent since 2013, according to the report. This has a negative impact on profitability from unpaid interest, raising provisions against impaired assets and realising losses when disposing bad debts, according to KPMG.