New data from European banking regulators reveals that asset quality varies widely across the region’s banks, says New York City-based Moody’s Investors Service in a report published Wednesday.
The rating agency says that
The latest data from the European Banking Authority (EBA) reveals “large gaps in asset quality” across the banks, the Moody’s report says.
In particular, the report notes that asset quality in Austria is notably weaker than in Germany; and, it says that Spanish banks have sizeable legacy assets compared with the rest of Europe.
“The EBA data show that weak loan performance is a major challenge for Austrian banks while credit quality in Germany is more benign, supporting those banks’ profitability,” says Swen Metzler, vice president at Moody’s, in a statement announcing the report.
“For the first time, the EBA’s data discloses forborne exposures, which identifies restructured loans where terms and conditions are eased to help borrowers who have difficulty meeting their financial commitments,” adds Alberto Postigo, also a vice president at Moody’s. “We consider these exposures a potential source of incremental credit risk that is currently not fully reflected in banks’ provisioning policies.”
Spanish banks have one of the highest percentages of forborne loans, ranking just below Cyprus and Ireland, the Moody’s report notes. Combining non-performing loans and forborne loans, Irish and Italian banks are most exposed to problematic loans within Europe’s large economies, the report adds, followed closely by Spanish banks. Additionally, Spanish banks have sizeable exposures to repossessed real estate assets, the report notes.
Although asset quality in Germany is better than the European average, banks there have relatively low level of reserves for the problem loans that they do have on their books. Banks there would need to boost reserves by €6.6 billion ($9.8 billion) to reach the European average, the Moody’s report says.