Could Non-Performing Loans Be the Next Trigger?

Moreso than ever before, the world has been financialized. The increased financialization means that loans and other borrowing instruments are quite important to economic growth.

Within this vein, some interesting trends have emerged over the past few years.

Non-Performing Loans

The following is a look at countries with non-performing loans above 6.6% of their total loans balances. The list includes some concerning areas.

The Three Worst

On top of the non-performing loans list is Cyprus, at 40.2%. In second place is Greece at 39.9%. In third place is another European country, Ireland, at 30.3%.

Take a step back and think about it.  About 40% of all loans are not being paid back in Cyprus and Greece.

Amazing.  In a sad way.

Others on the List

The list, of course, doesn’t stop with teetering European economies. Other members with non-performing loans above 20% include Albania (25.3%), Romania (25.3%), Sierra Leone (24.7%), Senegal (22.8%), Slovenia (21.2%), and Serbia (20.3).

Other big economies on the list include Italy (16.9%), Portugal (12.9%), Ukraine (12.9%), and Spain (9.4%).

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The Other End of the Non-Performing List

Now take a look at economies on the other end of the non-performing spectrum. The best area where individuals and businesses are having little difficulty paying back their loans is Estonia at 0.2%.

Interestingly, the list includes not only very wealthy economies, but some small, globally less significant areas.

Large economies on this list include at the United States at 2.8%, Brazil at 2.7%, Japan at 2.3%, Australia at 1.1%, China at 1.0%, South Korea at 0.8%, and Canada at 0.4%.

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How Has the Situation Changed over the Past 3 Years?

A 2014 snapshot, of course, doesn’t provide a complete view. Here’s a look at what non-performing loans have done for selected countries since 2012.

The green dot represents where the percentage of non-performing loans were in 2012. In orange is 2013. In blue is 2014.

Large Increases

Some countries at the top have experienced some large expansions in their non-performing loans.

Greece, for example, saw the percentage of loans classified as non-performing jump from 31% in 2013 to 40% in 2014. Cyprus experienced a similar jump over the same period, with non-performing loans going from 30% to 40%.

Small Changes

Interestingly, the large jumps in countries such as Greece or Cyprus was not matched by countries where non-performing loan figures improved. Improvement in countries such as the U.S, China, Australia, and South Africa was marginal.  The figures barely improved.

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Conclusion

Overall, non-performing loans exploded in certain areas of the globe in 2014. Can non-performing loans be a trigger for broader global turmoil in this year or the next?

The answer is, unsurprisingly, maybe.  After all, all it took to send the global economy into a terrible recession in 2008 were a few areas of the U.S. housing market.  The weakness in certain U.S. housing markets snowballed across the globe.  The same type of experience could happen here.

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