The European Central Bank’s increased interest rates have started to affect the trend of loan servicing in the Eurozone, with Scope analyzing data from the EBA, the European Banking Authority, and finding that non-performing loans (NPLs – MED) of its banks EU/EEA continued to grow to €364.9 billion in Q4 2023.
However, the increase (€2.2 billion quarter-on-quarter, €7.5 billion year-on-year) was barely noticeable compared to the EU-wide consolidated NPL index, which rose from 1.81% to 1, 85%, but close to the historic low of 1.75% in March 2023.
Progress with asterisks in “red loans” in Greece, DBRS “sees”.
While the increase was modest, it still represents a reversal of the long-term trend of improving asset quality, Scope said. And although it forecasts a modest economic recovery in the second half of 2024, aided by possible rate cuts, NPL formation will likely continue to rise modestly this year due to a time lag, he explains.
The progress of individual countries
The situation varies between countries. Germany (+€4bn) and Austria (+€1.8bn) had the largest NPL increases in Q4 2023, even if the deterioration was contained and NPL ratios only reversed to their December 2019 levels This contrasts with continued improvements in the Netherlands (-1.2 billion euros) and Italy (-1.7 billion euros).
Overall, the increase in NPLs came mainly from business openings. Retail openings have so far been resilient in the current economic slowdown. The largest increase in retail NPL ratios occurred in Finland and Sweden. In the Netherlands and Italy, the decline in retail NPLs contributed to the overall improvement, suggesting that the trend is broad-based.
In any case, Scope does not see a general deterioration in NPL rates by corporate sector or a concentration of issues in specific sectors. Real estate and construction exposure has been a source of problem loans and remains an area of concern. The construction sector appears most often among the top 3 sectors with the largest NPL ratios among countries.
NPL ratios in “Other EU/EEA countries” are not substantially different, with a modest increase in some countries (Luxembourg, Norway) and continued improvement in 11 countries, particularly in Greece, Ireland and Portugal. 
