Daily Management Review

IMF Stress Importance on Tackling Bad Loans of European Banks for Economic Recovery


11/24/2015




IMF Stress Importance on Tackling Bad Loans of European Banks for Economic Recovery
The IMF urged the European banks to clear up the bad loans while acknowledging that important things had been done in Europe, and the euro zone in particular, to shore up the banking sector.
 
Jose Vinals, the director of the Monetary and Capital Markets Department at the International Monetary Fund said that Europe must take "decisive action" to tackle the 900 billion euros ($956 billion) worth of non-performing loans (NPLs) the banks have on their books, CNBC reported.
 
Non-performing loans are loans that are in or close to default.
 
"Important things have been done, such as the increasing of capital of the banks, but there are still about 900 billion euros on NPLs that still need to be decisively tackled," Vinals said.
 
Banks in the Southern euro zone countries including Italy, Protugal, Spain and Greece were the ones who particularly have problems of NPLs.
 
The total NPLs held by banks in the Eurozone were examined and found to be around 879.1 billion euros after the European Central Bank conducted an asset quality review of 130 euro zone banks in October 2014.
 
Europe's tentative economic recovery could be hampered as the NPLs damage the entire economy, Vinals said.
 
"They capture capital and lower the profitability of the banks so the capacity of the banks to provide credit to the economy is lower. Banks with higher NPLs tend to have less willingness and ability to provide loans but Europe needs banks that lend to the corporate or household sector to support the recovery," said Vinals.
 
The IMF director stressed on creating legal reforms on frameworks for debt restructuring by banking supervisors and local authorities, as he drove home the necessity to take "decisive action" to tackle the NPL situation of the European banks.  
 
Italy, which is troubled with a banking sector cluttered with 330 billion euros worth of NPLs, is mulling on the creation of a “bad bank”.
 
Talking about the potential of a global economic recovery, Vinals said that it was too early to tell whether it had left the recession behind for good.
 
"What we have is a global recovery which is modest and uneven and doing slightly better in advanced economies, including the euro area and European Union, but which is not a vigorous recovery -- and emerging markets are losing strength," said Vinals
 
Issuing a warning for a possible downside risks to the global economy appeared ot be more pronounced, the IMF had the IMF had trimmed its expected global growth forecasts for 2015 for a second time this year in early October.  
 
IMF has forecast a 3.1 percent global fgrowht for 2015 and a 3.6 percent growth in 2016.
 
"One can only make that happen if one has an upgrade in the type of policies that governments put in place, for example, fiscal policies in those countries that have some room for maneuver to expand, like in Germany or the Netherlands, or structural reforms, which are something that most advanced economies and many emerging markets need," Vinal cautioned.
 
(Source:www.cnbc.com) 






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