Category Archives: Euro area banks

26/6/15: Grexit and European Banks

In the tropical heat of #Grexit, which banks get sweats, which get chills? Two charts via @Schuldensuehner :

Note increased (speculative) exposures at Deutsche and Barclays, RBS and Commerzbank... which kinda jars with the conventional wisdom of uniformly reduced exposures. Total end of 2014 exposures were at USD44.5 billion, which is basically marginally down on Q4 2012-Q4 2014 period.

You can see pre-crisis debt flows within the Euro area here:

7/5/15: Europe’s Non-Performing Loans: Still Rising & Getting More Toxic

In the world of scary stats, there's no place like Europe.

Even the perennial optimists at the IMF - that place where any debt is sustainable as long as there are structural reforms underway - agrees. This is why the IMF published this handy chapter as a part of its Global Financial Stability Report for Q1 2015 (

In this report it said that [italics are mine]: "Asset quality continued to deteriorate in the euro area as a whole in 2014, although at a slowing pace, with total nonperforming loans now standing at more than €900 billion. Furthermore, the stock of nonperforming loans in the euro area is unevenly distributed, with about two-thirds located in six euro area countries. [The stock of nonperforming loans in Cyprus, Greece, Ireland, Italy, Portugal, and Spain in total amounts to more than €600 billion]. In Cyprus, Greece, Ireland, Italy, Portugal, and Slovenia, a majority, if not all, of the banks involved in the ECB’s Asset Quality Review were found to have nonperforming assets of 10 percent or more of total exposure."

Roll in two super scary charts:

So far so bad… But it gets worse. "These bad assets are large relative to the size of the economy, even net of provisions. Euro area banks have lagged the United States and Japan in the early 2000s in their write-offs of these bad assets, suggesting less active bad debt management and more limited improvement in corporate indebtedness."

And another spooky illustration in order here:

Now, let's sum this up: after 6 years of 'reforms', deleveraging, special bad loans vehicles set ups, extraordinary legislative and regulatory measures aimed at dealing with loans arrears, waves of corporate and household bankruptcies, a minestrone worth of alphabet soups of various 'Unions' etc etc etc…

  • Bad debts pile in Euro area is rising;
  • Bad debts pile in Euro area is not matching dynamics in other countries, specifically the economic wasteland of Japan; and 
  • The best performing country in the group - Ireland - has the second worst performing banking balance sheet in the group (even after Nama and IBRC are netted out).

Clearly, successful resolution of the crisis is at hand.

8/2/15: Reformed Euro Area Banks… Getting Worse Than 2007 Vintage?..

For all the ECB and EU talk about the need to increase deposits share of banks funding and strengthening the banks balance sheets, the reality is that Euro area banks are

  1. Still more reliant on non-deposits finding than their US counterparts; 
  2. This reliance on non-deposits funding in Euro area is actually getting bigger, not smaller compared to the pre-crisis levels; and
  3. This reliance is facilitated by two factors: slower deleveraging in the banking system in the Euro area, and ECB policy on funding the banks, despite the fact that Euro area banks are operating in demographic environment of older population (with higher share of deposits in their portfolios) than the US system. Note that Japanese system reflects this demographic difference in the 'correct' direction, implying older demographic consistent with lower loans/deposits ratio.
Here's the BIS chart on Banking sector loan-to-deposit and non-core liabilities ratios  showing loan-deposit ratios:

Note: 1)  Weighted average by deposits. 2)  Bank liabilities (excluding equity) minus customer deposits divided by total liabilities. 3) The United States, Japan and Europe (the euro area, the United Kingdom and Switzerland). This ratio measures the degree to which banks finance their assets using non-deposit funding sources.