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EBA transparency exercise: Greece still tops NPL list despite bad-loan reduction

Greece's banks still have by far the highest aggregate nonperforming loan ratio in Europe, despite reducing the number to 35.2% at the end of 2019 from 37.4% three months earlier, according to the European Banking Authority's latest transparency exercise.

Banks in Cyprus and Bulgaria had the second- and third-highest NPL ratios of 19.3% and 18.2% at the end of December, respectively, down from 21.1% and 21.0% at the end of September 2019. Meanwhile, Sweden retained the lowest ratio of 0.50%, unchanged over the period.

European banks' aggregate average NPL ratio stood at 2.7% at 2019-end, compared to 2.9% at the end of September 2019, while their average aggregate NPL coverage ratio was 44.7%, down from 44.6%.

As of Dec. 31, 2019, Hungary's aggregate NPL coverage ratio stood at 67.42%, the highest among the banking systems in the sample, down from 68.12% at the end of September 2019.

The EBA also said June 8 that banks entered the COVID-19 crisis with "solid" capital positions and improved asset quality. Compared with the 2008 global financial crisis, European banks now hold larger capital and liquidity buffers, it said.

Banks' capital levels have improved quarter over quarter, with the average fully loaded common equity Tier 1 capital ratio rising by roughly 40 basis points to 14.8% at the end of the fourth quarter, owing to higher capital and contracting risk exposure amounts. Meanwhile, EU banks' weighted fully phased-in leverage ratio increased by 30 basis points to 5.5%, driven by rising capital and declining exposures.

The EBA said, though, that the data showed significant dispersion across banks. The 2020 spring transparency exercise covers data as of September and December 2019 disclosed by 127 banks from 27 European Economic Area countries.

In late May, the EBA warned that banks are likely to face rising bad loans, matching those incurred during the eurozone's sovereign debt crisis, due to the economic impact of the pandemic.

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