A significant increase in NPLs
Non-performing loans (NPLs) continue to put pressure onEuropean banks. An analysis of European NPLs done by Oliver Wyman reveals that these bad loans will increase significantly in a post-pandemic world.
For example, the NPL ratio in the pre-COVID times was dangerously high in several countries, including Greece (40.1%),Italy (8.9%) and Portugal (8.3%). However, the situation is expected to exacerbate after COVID-19.
Banks with a high volume of NPLs would experience a reduction in net interest income, an increase in impairment losses, and additional capital reserve requirements for high-risk weighted assets. Furthermore, NPLs require additional management time and servicing costs to resolve the problem.
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