European banks drag heels on loan sales: survey

Thu Oct 11, 2012 6:33am EDT
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By Dasha Afanasieva

LONDON (Reuters) - European banks will need at least another five years to bolster their capital base in line with new regulations, as they wait for loan books to slowly expire rather than sell them at a loss, a report said on Thursday.

The resultant protracted shortage of credit for firms and individuals risks starving investment and spending and, in turn, hinder the economic recovery, according to a Deloitte survey of banks representing 11 trillion euros ($14.19 trillion) in assets.

Banks need to reduce loan portfolios and trading positions to comply with regulators' demands to put up more of their own money for every dollar they lend.

Almost three quarters of respondents to the Deloitte survey said that reducing balance sheet debt is likely to take more than five years - longer than previous banking crises.

The IMF expects banks to reduce their balance sheets at a faster pace than suggested by Deloitte.

October's Global Financial Stability Report said European banks are likely to offload $2.8 trillion in assets over two years, or over 7 percent of total assets.

But Deloitte's report found the process - known as deleveraging - will be "surprisingly modest", involving less than 7.5 percent of total assets over five years.

"While the numbers involved are large in nominal terms, this is a relatively small compared with the expansion of credit in the boom years," said Margaret Doyle, head of Financial Services Research at Deloitte.   Continued...