presentation: non-performing loans in europe and the us ... · italy* spain portugal greece (right)...
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Research Deutsche Bank Jan Schildbach
16 June 2016
Research Deutsche Bank
Non-performing loans in Europe and the US – impact on banks & customers
Brussels, 16 June 2016
Jan Schildbach
Research Deutsche Bank Jan Schildbach
16 June 2016
Agenda
2
1
NPL impact on banks & customers
Macro picture
2
Research Deutsche Bank Jan Schildbach
16 June 2016
High – and often rising – private-sector debt levels in Europe
3
0
20
40
60
80
100
FR DE UK US Euro area
IT ES PT GR IE SE
2005 Q3 2015
Credit to households% of GDP
Source: BIS
0
40
80
120
160
200
FR DE UK US Euro area
IT ES PT GR IE SE
2005 Q3 2015
Credit to non-financial corporations% of GDP
Source: BIS
Research Deutsche Bank Jan Schildbach
16 June 2016
... partly a result of deep crisis (not yet overcome by some countries) – leading to strong policy response
4
75
80
85
90
95
100
105
110
115
Q1 2007
Q1 2008
Q1 2009
Q1 2010
Q1 2011
Q1 2012
Q1 2013
Q1 2014
Q1 2015
Q1 2016
EU-28 EMU-19 DE FRUK IT ES GRPT SE US
2010 = 100
Source: Eurostat
Real GDP
0
1
2
3
4
5
6
7
1999 01 03 05 07 09 11 13 15
US Euroland UK
%Main official interest rates
Sources: Federal Reserve, ECB, BoE
Research Deutsche Bank Jan Schildbach
16 June 2016 5
Bank lending rates: Record lows abound
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
11 12 13 14 15 16
Loans to non-financial corporations, EUR ≤ 1 m
Loans to non-financial corporations, EUR > 1 m
Loans to self-employed & non-corporate businesses
Corporate lending rates in theeuro area, by loan size%, new business
Source: ECB
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
11 12 13 14 15 16
≤ 1 year 1-5 years > 5 years
... by rate fixation period%, loans to non-financial corporations
Source: ECB
Research Deutsche Bank Jan Schildbach
16 June 2016
— Between 2012 and 2015, — bank loan outflows of EUR 302 bn in
the EMU — compensated by inflows of
EUR 323 bn from bond issuance
— Narrow investor base limits further growth potential
— Capital Markets Union a good opportunity to 1. allow for a more active involvement of
pension funds in bond markets 2. reduce the mechanistic reliance on
ratings 3. iron out duplications and overlaps in
disclosure regimes
Nevertheless, corporate borrowing has partly shifted to capital markets – but will it continue?
6
-200
0
200
400
600
0
40
80
120
160
06 07 08 09 10 11 12 13 14 15
Bond issuance (left) Bank loans (right)
EUR bn, Net bond issuance (left), EUR bn, Bank loan flows (right)
Sources: ECB, Deutsche Bank Research
Euro area: Non-financial firms' funding shifts from loans to bonds
Research Deutsche Bank Jan Schildbach
16 June 2016
Agenda
2
1
NPL impact on banks & customers
Macro picture
7
Research Deutsche Bank Jan Schildbach
16 June 2016
Low rates have prevented a surge in delinquencies
8
32.9 32.1 30.1 28.7 26.1 24.0 23.2
53.5 51.1 49.5 59.6 61.0 60.5 61.4
25.2 21.6 22.221.3 18.9 17.7 16.0
19.5 22.0 24.930.0 33.1 31.2 29.5
18.1 17.7 17.419.0 21.1 18.2 15.9
12.3 12.9 12.913.1 12.1
11.5 11.5
21.9 21.3 20.020.0 20.4
19.0 17.5
0
20
40
60
80
100
120
140
160
180
200
2009 2010 2011 2012 2013 2014 2015
Germany France UK EMU peripherals Benelux Austria/Switzerland Nordics
Corporate insolvencies in Europe
Source: Creditreform
in '000
Research Deutsche Bank Jan Schildbach
16 June 2016 9
... which in turn helped stabilise/improve credit quality at banks
0
4
8
12
16
20
24
28
32
36
40
0
2
4
6
8
10
12
14
16
18
20
Q4 09 Q4 10 Q4 11 Q4 12 Q4 13 Q4 14 Q4 15
France* Germany*UK* USItaly* SpainPortugal Greece (right)Ireland (right)
Non-performing loans as % of total loansNPLs in selected countries
* No data available for Q1 and Q3, data for Germany only available for Q4.
Sources: IMF, Banco de España, Banco de Portugal,Deutsche Bank Research
0
50
100
150
200
250
300
350
400
Q4 2010
Q4 2011
Q4 2012
Q4 2013
Q4 2014
Q4 2015
France Germany UKUS Italy SpainPortugal Greece Ireland
Total NPLs
Sources: IMF, Banco de España, Deutsche Bank Research
in billions of national currency
Research Deutsche Bank Jan Schildbach
16 June 2016
Provisioning for loan losses remained a drain though, until recently – faster cleanup & recovery in the US
10
0
10
20
30
40
50
60
70
80
06 07 08 09 10 11 12 13 14 15
US banks Large European banks
Loan loss provisionsUSD / EUR bn, up to Q4 15
Sources: FDIC, company reports, Deutsche Bank Research
0.0
2.5
5.0
7.5
10.0
12.5
15.0
0.0
0.5
1.0
1.5
2.0
2.5
3.0
Q1 05
Q1 06
Q1 07
Q1 08
Q1 09
Q1 10
Q1 11
Q1 12
Q1 13
Q1 14
Q1 15
Residential mortgages C&ICRE AutoConstruction (right) Credit card (right)
Loan performance in the US:net charge-offs% of outstanding volumes
Source: FDIC
Research Deutsche Bank Jan Schildbach
16 June 2016
Low rates have failed to support/hurt European banks in other areas
11
105
110
115
120
125
130
135
140
H1 09
H2 H1 10
H2 H1 11
H2 H1 12
H2 H1 13
H2 H1 14
H2 H1 15
H2
EUR bn, top 20 European banks
Sources: Company reports, Deutsche Bank Research
Net interest income
-9
-6
-3
0
3
6
9
12
08 09 10 11 12 13 14 15 16
US Euro area
Lending to the private sector% yoy, up to Mar 16
Sources: ECB, FDIC, Deutsche Bank Research
Research Deutsche Bank Jan Schildbach
16 June 2016
European banks are 4-5 years behind their US peers in the cycle
12
70
80
90
100
110
120
130
Q1
06
Q1
07
Q1
08
Q1
09
Q1
10
Q1
11
Q1
12
Q1
13
Q1
14
Q1
15
US banks Large European banks
Total revenues
Sources: FDIC, company reports, Deutsche Bank Research
Q1 2006 = 100, up to Q4 15
-80
-60
-40
-20
0
20
40
60
Q1
06
Q1
07
Q1
08
Q1
09
Q1
10
Q1
11
Q1
12
Q1
13
Q1
14
Q1
15
US banks Large European banks
Net income
Sources: FDIC, ECB, company reports, Deutsche Bank Research
USD / EUR bn, up to Q4 15
Research Deutsche Bank Jan Schildbach
16 June 2016
Building up capital has thus been painful
13
4
5
6
7
8
9
10
11
12
13
14
08
Q2
09 09
Q2
10 10
Q2
11 11
Q2
12 12
Q2
13 13
Q2
14 14
Q2
15 15
%
Core Tier 1/Common Equity Tier 1ratio* of Europe's 20 largest banks
* Basel II; Basel 2.5 applied from Q4 11 on, Basel III from Q1 14 on
Sources: Company reports, Deutsche Bank Research
10
11
12
13
14
15
16
17
18
19
20
Jun
07D
ec 0
7Ju
n 08
Dec
08
Jun
09D
ec 0
9Ju
n 10
Dec
10
Jun
11D
ec 1
1Ju
n 12
Dec
12
Jun
13D
ec 1
3Ju
n 14
Dec
14
Jun
15D
ec 1
5
Total assets / equity capitalEuro-area banks' leverage ratio
Sources: ECB, Deutsche Bank Research
Research Deutsche Bank Jan Schildbach
16 June 2016
With more tightening to come: Regulatory timeline
14
Source: Deutsche Bank
Research Deutsche Bank Jan Schildbach
16 June 2016
Extraordinary macro environment: − Private-sector indebtedness has even deteriorated since the financial crisis − Deep crisis not yet overcome in Europe – US back on track, except for
monetary policy
Positive impact on borrowers: − Extremely low lending rates in Europe − Declining number of business insolvencies
Mixed impact on banks: − Benefiting from improving asset quality & shrinking non-performing loans − However, still elevated level of problem assets and loan loss provisions in
Europe − In addition, no pickup in lending and increasing interest margin pressure –
in an ever tighter regulatory environment − Contrast to US: fall in margins more than compensated for by strong growth
in credit volume
Conclusion: Low rates helped customers, but EU banks still suffering from high level of non-performing loans
15
Research Deutsche Bank Jan Schildbach
16 June 2016
Contact
Jan Schildbach
Deutsche Bank Research
Head of Banking, Financial Markets and Regulation
Taunusanlage 12
D-60325 Frankfurt/Main
Phone: +49 69 910-31717
E-mail: [email protected]
Internet: www.dbresearch.com
Research Deutsche Bank Jan Schildbach
16 June 2016
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