U.S. Markets

Euro zone banks' bad loan ratio eases again, ECB data shows

FILE PHOTO: European Central Bank (ECB) headquarters building is seen in Frankfurt, Germany, March 7, 2018. REUTERS/Ralph Orlowski

FRANKFURT (Reuters) - The proportion of soured loans held by euro zone banks compared to total lending continued to shrink in the first quarter of the year, European Central Bank data showed on Thursday, even as the outstanding amount of non-performing debt rose.

The non-performing loan ratio of the bloc’s biggest banks dropped to 2.54% from 2.63% three months earlier, even as a double dip recession battered the economy and many firms in the services sectors were shuttered due to government restrictions.

In nominal terms, the stock of bad loans rose to 455 billion euros from 443.6 billion, a reflection of a relatively quick expansion of lending both to businesses and households.

The ECB has long warned that banks may be being overly complacent in recognising bad loans during the pandemic, arguing that the actual status of lenders’ loan books is not as solid as the non-performing data seem to suggest.

With government guarantees in place during the pandemic, banks have been reluctant to classify some of their loans as non-performing and many have released risk provisions, despite being threatened with a deluge of bad loans once guarantees expire.

Reporting by Balazs Koranyi; Editing by Kirsten Donovan