ECB Says Euro-Region Banks May Lose a Further $283 Billion

ECB Says Euro-Region Banks May Lose a Further $283 Billion

June 15 (Bloomberg) -- Commercial banks in the 16-nation euro region may lose a further $283 billion by the end of next year as the financial crisis forces them to write off bad loans, the European Central Bank said.

“Hard-to-value assets have remained on bank balance sheets and the marked deterioration in the economic outlook has created concerns about the potential for sizeable loan losses,” the Frankfurt-based ECB said in its June Financial Stability Report today. ECB staff estimates suggest the total amount of potential write-downs over the period 2007 to 2010 “could amount to around $649 billion.” Some $365 billion have already been reported, it said.

Deutsche Bank AG, Germany’s biggest bank, has booked about $14.9 billion in writedowns and credit losses since the U.S. subprime-mortgage crisis began in the middle of 2007, less than $2 billion of which were related to subprime loans. Worldwide losses tied to distressed loans and securitized assets may reach $4.1 trillion by the end of 2010 amid the worst global recession since World War II, the International Monetary Fund said on April 21.

“There is no room for complacency because the risks for financial stability remain high, also bearing in mind that the credit cycle has not yet reached a trough,” ECB Vice President Lucas Papademos said at a press briefing in Frankfurt today. “Policy makers and market participants will have to be especially alert in the period ahead.”

The ECB expects the euro-region economy to contract by around 4.6 percent this year and 0.3 percent in 2010. Inflation is expected to average just 0.3 percent this year, the bank’s latest projections show.

“Banks should be encouraged to take advantage of the governments’ commitments for support and strengthen their capital buffers,” Papademos said. Still, because buffers have been maintained well above the minimum regulatory requirements, euro-area banks “appear to be sufficiently well capitalized to withstand severe but plausible downside scenarios,” he said. Read Article... http://www.bloomberg.com/apps/news?pid=20601087&sid=a9OppHNsK.I4