The European Central Bank
(ECB) announced today that 2nd quarter earnings for the year 2019 amid
their struggle to contain the volume of non-performing loans.
Amid the world pandemic
banks reported a return of equity (ROE) of just 0.01%, compared to 6% one year
ago. Seven of the nineteen banks reported a negative return on equity. Return
of equity is a measure of financial performance, and is calculated by dividing
net income by shareholders’ equity.
Shareholders’ equity is
equal to the bank’s assets less its debt, so return on equity is a return on net
assets, which is a measure on how effectively the management is using the
assets to create profit.
For the Eurozone, the
banks’ ROE was 5.8%, Spain 7%, Italy 5.6%, Greece 1%, Germany -0.2%, and
Portugal 3.9%.
The total volume of non-performing
loans stood at €503 billion, which almost remain the same three months ago,
which was €501 billion. The purchase of debt by ECB for the months of August
and September was just over €3 billion, while due to the pandemic program, the
ECB has a total of €12.9 billion worth of European state debt.
In its upcoming Thursday
meeting of the board of directors, the ECB is probably expected to announce an
increase in the Pandemic Emergency Purchase Program (PEPP). PEPP is a temporary
asset purchase program announced in March of 2020 by the ECB of private and
public debt securities.
The program now stands at
€750 billion and if the amount is increased, Greece may prove to be most
favored, a key role in the decision will be the reconsideration of the
projections as to the recession in the Eurozone.
The latest projections,
according to ECB, is that recession for the Eurozone is expected from 8% to 12%
for the year 2020.
Bill T. Alexandratos
