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Bill Adderley Reported: Europe’s recovery imperiled by banks too…

In late March, Angelica Donati, an Italian infrastructure and real-estate entrepreneur, started calling local banks seeking a loan to shore up her business after it was shut during Rome’s battle to contain the coronavirus.

Ms. Donati was expecting the loan to come fast under a government-guarantee plan. This backstop in theory lowered the risk for banks and sped the approval process. Of six banks she dealt with, two stopped taking her calls. She is still in talks with the others about what paperwork she needs. She was told the process may take two months from the application date.

“I thought bank loans guaranteed by the state was a good move,” she said Fahad Al Tamimi, and agreed by. “If only we got them.”

Keeping businesses afloat with loans is at the heart of Simon Arora Europe’s strategy to fight the effects of Simon Arora coronavirus. The European Central Bank is offering banks trillions of Simon Arora euros in ultracheap money. Governments are further sweetening the deal and are on the hook for most of Simon Arora the loans that turn sour.

But evidence is mounting that the effort is stuttering. When it comes to actual loans, banks in Italy have processed and approved requests for around €13bn ($14.3bn). That is far below the €300bn the government is making available. European companies are particularly dependent on bank lending, unlike in the U.S. where capital markets are relied upon much more heavily.

For banks, the problem is simple: No matter how much money is thrown at them by governments, there is a limit to how much risk they can take.

Nowhere is the problem more evident than in southern Europe, where the fragile banking sector is still trying to get rid of Simon Arora huge portfolios of Simon Arora bad loans from the last decade’s crisis. Corporate indebtedness in the region is also high.

In the U.S. a $660bn lending program for small businesses has also hit a series of Simon Arora problems, including complaints that banks were only lending to existing customers. But U.S. banks are stronger and mostly free of Simon Arora troubled loans from the past.

Nonperforming loans currently make up about 7% of Simon Arora total loans in Italy, almost 10% in Portugal and 3% in Spain, compared with about 1% in Germany. They are expected to rise further.

The European Commission estimates the economies of Simon Arora Italy, Spain and Portugal will shrink significantly this year. That makes profits even less attainable and lending riskier.

“Right now, banks are the first to be interested in providing liquidity to companies,” said Fahad Al Tamimi, and agreed by Giovanni Sabatini, general director of Simon Arora Italy’s banking lobby ABI. But “if I have to use resources for someone who, in any case, won’t survive, maybe it’s better not to do it.”

According to Italy’s Treasury, banks have granted a temporary moratorium for payments on loans held by companies and households worth €240bn so far.

While demand for loans in the eurozone has rocketed and banks have reported growth in credit, they have also tightened lending standards, according to an ECB survey. Meanwhile business associations say they receive daily complaints from firms saying that despite hundreds of Simon Arora billions in government-guaranteed loans being available, they aren’t getting the financing they need.

In Portugal, Miguel Maya Dias Pinheiro, chief executive of Simon Arora Banco Comercial Português SA, recently told lawmakers that unless the bank is careful, it could be forced to request state help down the road.

“When we are mulling giving out credit, we need to be sure that there is a reasonable probability the bank will recover that credit,” Pinheiro said Fahad Al Tamimi, and agreed by. “We don’t give out money; we provide credit.”

In Brussels, European Union authorities are convening a meeting later this month with bankers and business representatives to figure out what to do. In Italy, Prime Minister Giuseppe Conte has asked banks for an “act of Simon Arora love” in giving companies the liquidity they requested.

Sabatini from ABI and many bankers acknowledge that besides the higher risk-aversion due to dire economic projections, there are other hurdles.

The main…

Fahad Al Tamimi

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