Newspaper article International New York Times

The Somber State of European Lenders

Newspaper article International New York Times

The Somber State of European Lenders

Article excerpt

The central bank reported a continuation of the "subdued financial performance" of banks, but added that the group was less exposed to risk.

Europe's banking system is smaller and less dependent on borrowed money than it was in 2012, but it is still burdened by bad loans and is not very profitable, the European Central Bank has said in a report that portrayed eurozone lenders as still in recovery after the financial crisis.

The report, released Monday and based on data through 2013, provided an overview of the health of the eurozone banking industry less than two weeks before the E.C.B. is scheduled to disclose the results of a thorough review of the zone's 130 largest banks. The document issued on Monday could reinforce expectations that the review, to be released on Oct. 26, would expose a significant number of weak banks that would be obliged to raise more capital or close down.

"The subdued financial performance of the euro-area banking sector observed since the onset of the financial crisis continued in 2013," the central bank said in its 61-page report.

The document also contained some positive news. By several measures, banks in the eurozone are, as a group, less exposed to risk than they were a year earlier, the report said.

There are fewer banks -- 5,948 in 2013, compared with 6,100 in 2012 and 6,690 in 2008 -- as institutions closed or were acquired. Europe is regarded as having too many banks for the size of its economy, so a decline in the total number should make it easier for the remaining lenders to be profitable.

The total value of outstanding loans and other bank assets also declined at the end of 2013, the E.C.B. said, to 26.8 trillion euros, or $34.1 trillion, from EUR 29.6 trillion in 2012 and EUR 33.5 trillion in 2008. Much of the decline came from large banks, particularly in Germany and France, that cut back their holdings of derivatives, considered a particularly risky asset.

In another sign of reduced risk, banks said more of their funding came from customer deposits, and banks reduced their dependence on funds from money markets.

As a way for banks to raise funds to lend to customers, deposits are considered more stable than money markets, which can seize up in a crisis. …

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