2016-10-08
V. Vasiliauskas: Euro area banks must enhance business effectiveness and solve faster the problem of non-performing loans
With a smooth reduction of the level of non-performing loans, the European banking sector could contribute more effectively to the growth of credit levels and advancement of euro area economy. Vitas Vasiliauskas, Chairman of the Board of the Bank of Lithuania, and Mahmood Pradhan, the IMF Mission Chief for the Euro Area, will discuss the related International Monetary Fund’s (IMF) recommendations to the euro area at the meeting held in Washington, DC.
‘Banks could and should contribute more effectively to economic growth. The non-performing loan burden and lack of efficiency, however, prevent euro area banks from accomplishing this mission’, said V. Vasiliauskas. He noted that Nordic and Baltic banks could act as a benchmark for other euro area banks. The latest IMF report shows that in optimising their subdivision activities and reaching the level of banks in our region European banks could save USD 36 billion.
In some euro area countries non-performing loans still account for more than 30 per cent of the loan portfolio. Lithuania could be a shining example that the non-performing loan issue may be solved quickly and efficiently. According to the latest data, the level of non-performing loans amount to a meagre 5 per cent in Lithuania, falling from their peak level reached in 2010 by more than three times.
According to the governor of the Bank of Lithuania, amid challenges that the European banking system faces, it is necessary to look back on past mistakes and avoid the repetition of unfavourable scenarios when banks were salvaged using state budget funds. Provisions of the Bank Recovery and Resolution Directive, which establish the input of the private sector in solving the banks’ problems, must be followed.
The meeting of the Chairman of the Board of the Bank of Lithuania and the IMF Mission Chief for the Euro Area will also focus on the economic situation in the euro area following the decision of the United Kingdom to leave the European Union.
The Chairman of the Board of the Bank of Lithuania discussed the status of euro area banks and challenges awaiting this sector in the future with the governors of SEB bank and other parent banks operating in Lithuania, who are currently visiting Washington.
Vitas Vasiliauskas is a member of the Governing Board of the IMF. Together with the governors of other central banks and Ministers of Finance, as well as representatives from various financial institutions, he takes part in IMF and World Bank annual meetings and bilateral discussions held in Washington, DC.