Banking will need at least four more years to “solve” NPL, says DBRS

Nonperforming loans (NPL) will continue harming European banks. In Portugal, financial institutions will need at least four more years to present NPL ratios that stand in line with the criteria defined by the European Banking Authority (EBA), DBRS states in a note. The Canadian rating agency believes that the process of clearing the banks’ balance should be accelerated, namely by implementing new measures.

“DBRS expects that levels of Non-Performing Loans (NPLs) will remain high for some European Banks for several more years”, the rating agency states. DBRS also believes that “the current pace of reduction [of NPL] combined with the high stock of NPLs suggests that it will take to some Banks a long time to clean up their balance sheets”. In Portugal, and considering the current rhythm of reducing these default loans, banks will need at least four more years to have NPL ratios standing below 5%, in line with what is estimated for the remaining European countries.

“DBRS has estimated that it could take European banks around 4 years on average before the NPL ratios are below 5% at the current pace of reduction“, the Canadian rating agency stated. However, “there are some countries, like Greece or Cyprus, where the pace of reduction combined with the high stock of NPLs suggests that it will take a long time to clean up their balance sheets”.

Nonperforming loans remain a heavy burden on the Portuguese banking. NPL levels are still high, in spite of all the efforts made by banks to solve this issue: in total, in 2017, NPL shrunk by 9.3 billion euros, registering the second largest quarterly plunge ever in the end of 2017.