## Reviving Credit in the Euro Area

_IMF Blog, November 23, 2015_

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**Canonical URL:** [Reviving Credit in the Euro Area](https://www.imf.org/en/blogs/articles/2015/11/23/reviving-credit-in-the-euro-area)

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## Bibliographic details
- Authors: Jean Portier, Luca Sanfilippo
- Published: November 23, 2015

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### Overview
- Title: Reviving Credit in the Euro Area
- Authors: Jean Portier, Luca Sanfilippo
- Date: November 23, 2015
- Context: Summary findings from the Global Financial Stability Report on nonperforming loans (NPLs) in the euro area.

### Key findings
- A stock in excess of €900 billion of nonperforming loans continue to clutter the European banking system, impeding economic growth.
- Current inefficiencies—long foreclosure times and insolvency procedures—contribute to a gap between the value of loans on bank balance sheets and the price investors are willing to pay.
- Time to foreclose is used as a proxy for effective insolvency regimes in the analysis.
- Slow foreclosure times impede rapid NPL resolution, leading to higher NPL ratios.
- Example: In Italy, the current time to foreclose of four years is twice the current euro area average.
- Example: Italy’s average NPL ratio of about 11% is 1.6 times the euro area average.

### Quantitative estimates and scenarios
- Creating incentives for the effective restructuring or resolution of nonperforming loans by achieving a foreclosure time of one year maximum in each country can create a new lending potential of about €600 billion for the euro area as a whole.
- The potential positive impact in the most vulnerable countries of the euro area, where collateral foreclosure time is higher on average, is upwards of €373 billion in extra lending.

### Policy recommendations
- Countries should consider improving insolvency regimes as a tool to reduce the number of non-performing loans and help banks lend again.
- Upgrading legal systems and ensuring a reliable legal environment and an efficient judicial system can maximize the value of NPLs, reduce the value gap, and give banks greater incentive to remove NPLs from their balance sheets.

*Source: Reviving Credit in the Euro Area, Jean Portier and Luca Sanfilippo, November 23, 2015.*

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## References

- [Global Financial Stability Report,](http://www.imf.org/External/Pubs/FT/GFSR/2015/02/index.htm)

_Source: https://www.imf.org/en/blogs/articles/2015/11/23/reviving-credit-in-the-euro-area_