MNI: ECB Draghi Says Europe Banks' NPL Issues "Not Yet Solved"

By Christian Vits

     FRANKFURT (MNI) - European banks still have to tackle non-performing loans

while the overall shape of the sector shows improvements, European Central Bank

President Mario Draghi said Tuesday.

     "Though NPL levels have been coming down for significant institutions --

from around 7.5 percent in early 2015 to 5.5 percent now -- the problem is not

yet solved," Draghi said in a speech in Frankfurt. 

     "Many banks still lack the ability to absorb large losses, as their ratio

of bad loans to capital and provisions remains high," he added.

     Against this background, there is "no room for complacency", since

improvements are likely to have been driven, in part, by the improved economic

situation, Draghi noted. 

     "It is therefore crucial that further reforms to de-link banks from

sovereigns do not lose steam, notably completing the other pillars of banking

union," he said.

     With a view to negative interest rates, Draghi stressed that there has been

"little evidence" that negative interest rates are undermining bank

profitability, "an issue which has caused a lot of concern" because of possible

risks for financial stability and the monetary transmission.

     "This neutral impact of negative rates is largely due to the general

equilibrium effects of monetary policy that we have explained many times: when

policy is accommodative, the main components of profitability largely offset

each other, since the positive impact of a stronger economy on loan-loss

provisions largely cancels out any negative effect on net interest income,"

Draghi said.

--MNI Frankfurt Bureau; +49 69 97782671; email: christian.vits@marketnews.com

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