Home » Posts tagged 'non-performing loans' (Page 2)

Tag Archives: non-performing loans

How to dump toxic waste on the public through the backdoor.

Back during the euro debt crisis, while the ECB was buying government debt from Member States to keep Italian and Spanish government debt from imploding, German politicians fretted out loud about what exactly the ECB was buying. Among them was Frank Schäffler, at the time Member of the Federal Parliament, who in September 2011 said with uncanny accuracy:

“If the ECB continues like this, it will soon buy old bicycles and pay for them with new paper money.”

This is now coming to pass.

Italy, the Eurozone’s third largest economy, is in a full-blown banking crisis. Four small banks were rescued late last year. The big ones are teetering. Their stocks have crashed. They’re saddled with non-performing loans (defined as in default or approaching default). We’re not sure that the full extent of these NPLs is even known.

The number officially tossed around is €201 billion. But even the ECB seems to doubt that number. Its new bank regulator, the Single Supervisory Mechanism, is now seeking additional information about NPLs to get a handle on them.

Other numbers tossed around are over €300 billion, or 18% of total loans outstanding.

The IMF shed an even harsher light on this fiasco. It reported last year that over 80% of the NPLs are corporate loans. Of all corporate loans, 30% were non-performing, with large regional differences, ranging from 17% in some of the northern regions to over 50% in some of the southern regions. The report:

High corporate NPLs reflect both weak profitability in a severe recession as well the heavy indebtedness of many Italian firms, especially SMEs, which are among the highest in the Euro Area. This picture is consistent with corporate survey data which shows nearly 30% of corporate debt is owed by firms whose earnings (before interest and taxes) are insufficient to cover their interest payments.

…click on the above link to read the rest of the article…

Italy’s Banking Crisis Spirals Elegantly out of Control

February 15, 2016

Italy’s Banking Crisis Spirals Elegantly out of Control

How to dump toxic waste on the public through the backdoor.

“If the ECB continues like this, it will soon buy old bicycles and pay for them with new paper money.”

This is now coming to pass.

Other numbers tossed around are over €300 billion, or 18% of total loans outstanding.

The IMF shed an even harsher light on this fiasco. It reported last year that over 80% of the NPLs are corporate loans. Of them, 30% were non-performing, with large regional differences, ranging from 17% in some of the northern regions to over 50% in some of the southern regions. The report:

High corporate NPLs reflect both weak profitability in a severe recession as well the heavy indebtedness of many Italian firms, especially SMEs, which are among the highest in the Euro Area. This picture is consistent with corporate survey data which shows nearly 30% of corporate debt is owed by firms whose earnings (before interest and taxes) are insufficient to cover their interest payments.

…click on the above link to read the rest of the article…

Meet China’s Latest $1.8 Trillion “Problem”

February 1, 2016

Meet China’s Latest $1.8 Trillion “Problem”

Last summer we outlined how Chinese banks obscure trillions in credit risk.

The powers that be in Beijing aren’t particularly keen on allowing the banking sector to report “real” data on souring loans – especially given the fragile state of the country’s economy. In some cases, the Politburo will pressure banks to simply roll over bad debt, effectively kicking the can.

In addition, banks carry around 40% of their credit risk outside of “official loans.” Here’s what Fitch had to say last year:

“Off-balance-sheet financing (I.e. trust loans, entrusted loans, acceptances and bills) accounted for 18% of official TSF stock at end-2014, up from less than 2% just over a decade ago,” Fitch wrote. “Of the off-balance-sheet exposure reported at individual banks, this is equivalent to 15% of total assets for state commercial banks and 25% for mid-tier commercial banks, on a weighted average basis. These ratios would be even higher if we included entrusted loans (see Figure 2), although this information is not disclosed at all banks. Fitch estimates that around 38% of credit is outside bank loans.”

In many cases, channel loans (so credit extended by banks via non-bank intermediaries) are carried as “investments classified as receivables” on the balance sheet.

Now, as more Chinese firms lose access to traditional financing amid rising defaults and increasing economic turmoil, banks are increasingly turning to channel loans as a way of extending credit.

In turn, the amount of “investment receivables” on many mid-tier banks’ books is soaring to dizzying levels. “Mid-tier Chinese banks are increasingly using complex instruments to make new loans and restructure existing loans that are then shown as low-risk investments on their balance sheets, masking the scale and risks of their lending to China’s slowing economy,” Reuters reports. “The size of this ‘shadow loan’ book rose by a third in the first half of 2015 to an estimated $1.8 trillion, equivalent to 16.5 percent of all commercial loans in China.”

…click on the above link to read the rest of the article…

Italian Banks Sink As “Bad Bank” Plan Underwhelms

January 27, 2016

Italian Banks Sink As “Bad Bank” Plan Underwhelms

Last week, we noted that Italy is rushing to defuse a €200 billion time bomb in the country’s banking sector as investors fret over banks’ exposure to souring loans.

“Italian banks’ share prices have been volatile YTD, given the market’s renewed fears over asset quality and potential developments on a possible bad bank creation,” Citi wrote, in a note analyzing which Italian banks are most exposed. “Total gross NPLs in Italy have increased by c160% since 2009 and now represents c18% of loans (vs c8% in 2009).”

Essentially, Italy was slow to tackle its NPL problem relative to other countries and the chickens have now come home to roost.

The idea was to create a “bad bank” for the “assets” (because that’s worked so well in other countries), but the plan was stalled by the European Commission due to concerns about whether Italy was set to run afoul of restrictions around when countries can provide state aid to the financial sector.

In short, creditors at Italy’s banks would need to take a hit before PM Matteo Renzi’s government would be allowed to extend state aid. That is unless Italy could devise some kind of end-around, which is precisely what Renzi was attempting to do last week.

As a reminder, this would have been easier had it been negotiated last year before new rules on bank resolutions came into effect in 2016. That’s why Portugal pushed through the Novo Banco bail-in and the Banif rescue in December.

In any event, Italy has indeed managed to strike a deal with Brussels to help alleviate banks’ NPL burden.

Essentially, Italian banks will securitize their souring loans, sell them to investors, and the government will guarantee the senior tranches of the new paper.

…click on the above link to read the rest of the article…

Creditors Accuse Portugal Of “Unfair, Populist Short-Cut” In €2 Billion Bank Bail-In

January 14, 2016

Creditors Accuse Portugal Of “Unfair, Populist Short-Cut” In €2 Billion Bank Bail-In

Two weeks ago, The Bank of Portugal shocked markets by bailing in senior Novo Banco bondholders.

Novo Banco was the “good” bank forged from the ashes of Banco Espirito Santo which had to be bailed out by the state in August of 2014. The idea was to sell Novo Banco to pay for the cost of the bailout, but the auction process eventually floundered amid turmoil in Chinese markets (at least two of the potential bidders were Chinese) and uncertainty about whether this “good” bank would in fact need more capital given the elevated level of NPLs already on its books.

In November, the ECB told Novo it woudl indeed need to raise some €1.4 billion in fresh capital which the bank initially said would come from asset sales. A little over a month later, Portugal’s central bank essentially just gave up. On December 29, the bank announced it was transferring €2 billion in NB senior notes back to Banco Espirito Santo which, like a ghost skyscraper in China, is set for demolition.

In other words, Novo Banco plugged the €1.4 billion hole by essentially declaring €2 billion in bonds null and void.

There were five issues affected but you can get a pretty good idea about what happened next by having a look at how the 2017s traded that morning:

The reason this had to be done quickly was because if Portugal had waited until January, uninsured depositors would have been at risk under the EU’s new bank resolution mechanism. Plus, Portugal is anxious to get the auction process started again to avoid the decidedly unappealing prospect of having to keep the cost of the bailout on Lisbon’s books in perpetuity thus inflating the fiscal deficit by an extra 3% of GDP.

…click on the above link to read the rest of the article…

The Cost Of China’s “Neutron Bomb” Exploding: $7.7 Trillion And Higher

January 11, 2016

The Cost Of China’s “Neutron Bomb” Exploding: $7.7 Trillion And Higher

On Friday we presented Kyle Bass’ latest interview in which the Texas hedge fund manager explained the reasoning why he thought shorting the Yuan is the “greatest investment opportunity right now.” The crux behind the argument was well-known to Zero Hedge readers, namely China’s peaking credit cycle driven by soaring bad, or non-performing, loans which have so far been swept away, but which courtesy of a $35 trillion financial system are nothing short of a “neutron bomb“, as we first dubbed the embedded risk, waiting to go off. Here is Bass:

What I think the narrative will swing to by the end of this year if not sooner, is the real issue in China is not simply that profits have peaked. The real issue is the size of their banking system. Do you remember the reason the European countries ended up falling like dominoes during the European crisis was their banking systems became many multiples of their GDP and therefore many, many multiples of their central government revenue. In China, in dollar terms their banking system is almost $35 trillion against a GDP of $10 and their banking system has grown 400% in 8 years with non-performing loans being nonexistent. So what we are going to see next is a credit cycle, and in a credit cycle you see some losses, but if China’s banking system loses 10%, you are going to see them lose $3.5 trillion.

Today, months after we first covered the breadth of this most disturbing for Chinese bulls topic, the FT caught up with this critical, for China’s financial system, issue and reports that “the downturn in China’s fortunes — particularly across its heartland heavy industry — is already hitting the banks. Annual non-performing loan rates have been doubling annually since 2012. China Merchants Bank, China Everbright and ICBC are seen as among the most troubled.”

…click on the above link to read the rest of the article…

Europe’s Banks Are Still Drowning in Bad Loans

November 28, 2015

Europe’s Banks Are Still Drowning in Bad Loans

A “Major Concern”

The European Banking Authority EBA, which (we guess) is fighting for its survival after the ECB has become the sole supervisor of Europe’s “systemically relevant” banks, has recently issued a comprehensive report on the European banking system (this included the unintended revelation that its employees have yet to master the intricacies of Exel).

As an aside, we have little doubt that this bureaucracy will survive. Has there ever been a case of an EU bureaucracy not surviving and thriving? We don’t recall one off the cuff, but perhaps we are mistaken. We’re sure some reason will be found to preserve this particular zombie sinecure as well.

eba_2 Hey guys! We’re still issuing reports! See how important it is to keep us well-funded?

Among the things the EBA’s report apprises us of, is that European banks continue to be submerged in bad loans, in spite of all the bailouts and extend & pretend schemes that have been implemented in recent years. As Reuters reports:

“The scale of bad loans held by banks in the European Union is “a major concern” and more than double the level in the United States, despite an improvement in recent years, the EU’s banking regulator said on Tuesday.

Non-performing loans (NPL) across Europe’s major banks averaged 5.6 percent at the end of June, down from 6.1 percent at the start of the year. But that compares with an average of less than 3 percent in the United States and even lower in Asia, according to the European Banking Authority (EBA).

The total of NPLs across Europe is about 1 trillion euros ($1.1 trillion), equivalent to the size of Spain’s annual gross domestic product (GDP) and 7.3 percent of the EU’s GDP.

…click on the above link to read the rest of the article…

Did Mario Draghi Just Leak The Bazooka? Two-Tiered NIRP System May Presage Big Rate Cut

November 25, 2015

Did Mario Draghi Just Leak The Bazooka? Two-Tiered NIRP System May Presage Big Rate Cut

Back in September (and on several subsequent occasions), we discussed the implications of a further cut to the ECB’s depo rate. A plunge further into NIRP-dom would have serious consequences for the Riksbank, the SNB, the Nationalbank, and the Norges Bank.

In world dominated by beggar-thy-neighbor monetary policy, one cut begets another in race to the bottom as everyone scrambles to, i) keep their currency from soaring and ii) keep the inflationary impulse alive.

As Barclays explained in great detail several months ago, another ECB depo rate cut would have an outsized effect of the franc:

A cut in the ECB’s deposit rate further into negative territory likely would have a significant impact on the EURCHF exchange rate and provoke a more immediate response from the SNB. Indeed, we expect that a cut in the ECB’s deposit rate may have a greater effect on EURCHF than on other EUR crosses. Switzerland applies its negative deposit rate to only a fraction of reserves, currently about 1/3rd of sight deposits by our calculation. In contrast, negative deposit rates apply to all reserves held at the ECB, Riksbank and Denmark’s Nationalbank. Consequently, a cut to the ECB’s deposit rate likely has a larger impact both on the economy and on the exchange rate than a proportionate cut by the SNB.

Now, it appears Mario Draghi may be about to go the Swiss route by introducing a tiered system for the application of negative rates. As Reuters reports, “Euro zone central bank officials are considering options such as whether to stagger charges on banks hoarding cash ahead of the next European Central Bank meeting, according to officials.”

“Officials are discussing a split-level rate,” Reuters goes on to note, adding that the “contested step would impose a higher charge on banks depending on the amount of cash they deposit with the ECB.”

…click on the above link to read the rest of the article…

Greek Bad Debt Rises Above 50% For The First Time, ECB Admits

October 31, 2015

Greek Bad Debt Rises Above 50% For The First Time, ECB Admits

It was almost exactly one year ago, on October 26, 2014, when the ECB concluded its latest European Stress Test. As had been pre-leaked, some 25 banks failed it, although the central bank promptly added that just €9.5 billion in net capital shortfall had been identified. What was more surprising is that to the ECB, the Greek banks – Alpha Bank, Eurobank Ergasias, National Bank of Greece, and PiraeusBank had entered Schrodinger bailout territory: they had both failed and passed the test at the same time. To wit:

These banks have a shortfall on a static balance sheet projection, but will have dynamic balance sheet projections (which have been performed alongside the static balance sheet assessment as restructuring plans were agreed with DG-COMP after 1 January 2014) taken into account in determining their final capital requirements. Under the dynamic balance sheet assumption, these banks have no or practically no shortfall taking into account net capital already raised.

Got that? According to the ECB, last October Greek banks may have failed the stress test, but under “dynamic conditions” they passed it. What this meant was unclear at the time, although as we explained this was nothing more than an attempt to boost confidence in Europe’s banking sector. This was the key quote from the ECB’s Vítor Constâncio: “This unprecedented in-depth review of the largest banks’ positions will boost public confidence in the banking sector. By identifying problems and risks, it will help repair balance sheets and make the banks more resilient and robust. This should facilitate more lending in Europe, which will help economic growth.”

It didn’t.

…click on the above link to read the rest of the article…

Bad Debt Soars 35% In China As Government Set To Fabricate Dismal Loan Data

August 6, 2015

Bad Debt Soars 35% In China As Government Set To Fabricate Dismal Loan Data

Back in March, we noted that decelerating economic growth and bad debt are taking a toll on profitability at China’s largest banks, leading them to slash payouts to shareholders.

“Particularly hard hit is ABC, which saw its non-performing loans jump 25bps Q/Q,” we observed, adding that “NPLs for loans made to manufacturers more than doubled that number, rising 54bps sequentially.” That figure underscores the degree to which China’s transition from an investment-led, smokestack economy to a model driven by consumption and services is weighing heavily on industry and in turn, on banks that lend to the manufacturing sector.

Although NPLs have been rising for some time in China, determining the true extent of the problem is largely impossible due to Beijing’s “management” of bad loans. As we outlined in “How China’s Banks Hide Trillions In Credit Risk,” there’s no way to know how pervasive Beijing’s practice of forcing banks to roll-over problem loans truly is, meaning that even if we ignore the fact that quite a bit of credit risk is obscured by the practice of shifting it around, moving it off balance sheet, and reclassifying it, (i.e. if we just look at traditional loans) it’s still difficult to know what percentage of loans are actually impaired because it’s entirely possible that a non-trivial percentage of sour debt is forcibly restructured and thus never makes it into the official NPL figures.

Indeed, the fact that NPLs are remarkably similar across banks suggests the numbers are, much like China’s GDP data, “smoothed out.” That said, a look at “special mention” loans and overdue loans can help to paint a more accurate picture although the figures still look grossly understated.

Source: Fitch

…click on the above link to read the rest of the article…

Greek Capital Controls To Remain For Months As Germany Pushes For Bail-In Of Large Greek Depositors

July 26, 2015

Greek Capital Controls To Remain For Months As Germany Pushes For Bail-In Of Large Greek Depositors

Two weeks ago we explained why Greek banks, which Greece no longer has any direct control over having handed over the keys to their operations to the ECB as part of Bailout #3’s terms, are a “strong sell” at any price: due to the collapse of the local economy as a result of the velocity of money plunging to zero thanks to capital controls which just had their 1 month anniversary, bank Non-Performing Loans, already at €100 billion (out of a total of €210 billion in loans), are rising at a pace as high as €1 billion per day (this was confirmed when the IMF boosted Greece’s liquidity needs by €25 billion in just two weeks), are rising at a pace unseen at any time in modern history.

Which means that any substantial attempt to bailout Greek banks would require a massive, new capital injection to restore confidence; however as we reported, a recapitalization of the Greek banks will hit at least shareholders and certain bondholders under a new set of European regulations—the Bank Recovery and Resolution Directive—enacted at the beginning of the year. And since Greek banks are woefully undercapitalized and there is already a danger of depositor bail-ins, all securities that are below the depositor claim in the cap structure will have to be impaired, as in wiped out.

Now, Europe and the ECB are both well aware just how insolvent Greek banks are, and realize that a new recap would need as little as €25 billion and as much as €50 billion to be credible (an amount that would immediately wipe out all existing stakeholders), and would also result in a dramatic push back from local taxpayers. This explains why Europe is no rush to recapitalize Greece – doing so would reveal just how massive the funding hole is.

…click on the above link to read the rest of the article…

Italy – Non-Performing Loans Hit a New Record High

July 15, 2015

Italy – Non-Performing Loans Hit a New Record High

While all Eyes are on Greece, Italy’s Banks are Drowning in Bad Debt

The real danger to the euro area probably doesn’t emanate from Greece, but from two of its heavyweights, namely France and Italy. A small note in the European press reminds us that all is not well in at least one of these countries, least of all with its banks (currently this is only a “page 16 story”, but it has great potential to eventually move to the front page).

NPLs by region Regional distribution of non-performing loans in Italy

The note reads as follows:

“Rome – because of the recession of recent years and corporate bankruptcies, the total of bad loans has continued to rise in Italy. According to Italy’s banking association ABI, non-performing loans amounted to 193.7 billion euro in May, 25.1 billion more than in the same month in 2014. This is the highest level since 1996.

Non-performing loans represent 10.1 percent of all loans granted by Italian banks, ABI said on Tuesday. Especially small and medium enterprises continue to be under pressure due to bad loans, so will take a long time before banks will see the bad loan situation ease, the ABI report stated. Italian companies are currently struggling with the effects of the longest economic crisis since World War II and are therefore often no longer able to service their loans.”

(emphasis added)

If our calculator can be trusted, this means that bad loans in Italy’s banking system have increased by roughly 14.9% over just the past year – by no means a peak crisis year, although Italy’s listing economy continued to contract slightly.

As the following chart shows (unfortunately we were only able to obtain this slightly dated version), Italian NPLs stood at € 165 bn. in Q1 2014. However, to this one must actually add all sorts of loans that are otherwise delinquent/dubious or sub-standard, but haven’t yet reached “full” NPL status. These are summarized together with NPLs under the term impaired loans below.

…click on the above link to read the rest of the article…

“The Collateral Has Run Out” – JPM Warns ECB Will Use Greek “Nuclear Option” If No Monday Deal

June 21, 2015

“The Collateral Has Run Out” – JPM Warns ECB Will Use Greek “Nuclear Option” If No Monday Deal

(via Corriere)

Although estimates vary, Kathimerini, citing Greek banking officials, puts Friday’s deposit outflow at €1.7 billion. If true, that would mark a serious step up from the estimated €1.2 billion that left the banking system on Thursday and serves to underscore just how critical the ECB’s emergency decision to lift the ELA cap by €1.8 billion truly was. “Banks expressed relief following Frankfurt’s reaction, acknowledging that Friday could have ended very differently without a new cash injection,” the Greek daily said, adding that the ECB’s expectation of “a positive outcome in Monday’s meeting”, suggests ELA could be frozen if the stalemate remains after leaders convene the ad hoc summit. Bloomberg has more on the summit:

Dorothea Lambros stood outside an HSBC branch in central Athens on Friday afternoon, an envelope stuffed with cash in one hand and a 38,000 euro ($43,000) cashier’s check in the other.

She was a few minutes too late to make her deposit at the London-based bank. She was too scared to take her life-savings back to her Greek bank. She worried it wouldn’t survive the weekend.

“I don’t know what happens on Monday,” said Lambros, a 58-year-old government employee.

Nobody does. Every shifting deadline, every last-gasp effort has built up to this: a nation that went to sleep on Friday not knowing what Monday will bring. A deal, or more brinkmanship. Shuttered banks and empty cash machines, or a few more days of euros in their pockets and drachmas in their past – – and maybe their future.

For Greeks, the fear is that Monday will be deja vu, a return to a past not that distant. Before the euro replaced the drachma in 2002, the Greeks were already a European bête noire, their currency mostly trapped inside their nation, where cash was king and checks a novelty.

…click on the above link to read the rest of the article…

Tag Archives: non-performing loans

Content

Post categories

Economic Links

Energy/Resource Links

Environmental Links

Geopolitical Links

Liberty Links

News Links

Other Links

Survival Skills

Post Archives by Category

Post navigation

Latest Posts