Problem loan ratios rise at Monte dei Paschi, UniCredit in Q3

Two Italian banks, Banca Monte dei Paschi di Siena SpA and UniCredit SpA, reported the largest sequential increases in problem loan ratios in the third quarter among Europe's biggest banks, S&P Global Market Intelligence data shows.

Monte dei Paschi's problem loan ratio rose 52 basis points in the third quarter, rising above the 5% mark. That was the largest increase among a sample of 36 large European banks and the third consecutive quarter that the state-owned lender has had the highest ratio among those institutions.

UniCredit recorded the next-largest sequential increase at 41 basis points, though on a year-over-year basis it recorded the largest decline at 163 basis points. Asset quality also deteriorated slightly at domestic peer Intesa Sanpaolo SpA, whose problem loan ratio was 4 basis points higher on a quarterly basis.

Larger credit losses looming

Households and corporates are finding it increasingly challenging to service their debts, which means banks could face higher credit losses in the medium term, the European Central Bank said in a recent financial stability review.

"While the banking sector has recently seen a recovery in profitability as interest rates have risen, there are incipient signs of asset quality deterioration, which may require larger provisions," the ECB said.

U.K. banks NatWest Group PLC, Standard Chartered PLC and Lloyds Banking Group PLC also reported higher problem loan ratios. Lloyds has ramped up its loan loss provisioning, having booked £668 million of impairment charges in the third quarter, to brace for a downturn in the housing market and weaker economic growth, while NatWest took an impairment charge of £242 million.

HSBC Holdings PLC and Barclays PLC are also preparing for higher credit losses in the U.K., but those banks, which have larger global businesses and more diversified loan books, expect gains from higher interest rates to cushion the blow. Both reported improved problem loan ratios in the third quarter.

ABN Amro Bank NV, Türkiye Cumhuriyeti Ziraat Bankasi AS and Nykredit A/S reported the biggest sequential improvements in their problem loan ratios, cutting them by more than 20 basis points.

Problem loans up at HSBC, Santander

Among Europe's four largest lenders for which data is available, Banco Santander SA and HSBC were the institutions to see higher total problem loans.

* Download an Excel file on European bank financials.  * Access the aggregate asset quality data for Italian banks. * Access the aggregate asset quality data for U.K. banks.