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It was a rare good day to be a Greek bank. Suggestions that the European Central Bank may extend its government bond purchasing programme gave hope to lenders sitting on stores of shunned “peripheral” euro-zone bonds. But even after today’s boost, Greek bank shares closed at around half of their value at the start of the year. Recently published financial results from the country’s largest lenders showed steadily rising provisions against sour loans, with little sign of a let-up any time soon.

A series of big, bold charts accompanies the latest report on consumer debt in the US by the New York Fed (via Alea, also discussed here). The report contains plenty of interesting data about the ongoing deleveraging of American households. As of the end of September, total indebtedness is down by 7.4% from its peak value two years earlier. The distaste for new debt is underscored by trends in mortgage originations, which are running at 50% of their 2003-07 average, and credit cards, which have seen a net 120m accounts—one hundred and twenty million—closed since mid-2008.

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Although each passing quarter puts more space between Mexico’s banks and the severe recession of 2008-09, the country’s largest lenders remain hesitant. Even compared with last year, the toughest operating environment for banks in more than a decade, third-quarter earnings at the top five financial groups—which control about three quarters of all banking assets—were distinctly ambivalent.

While most of the banks reported year-on-year earnings growth in the third quarter, this was generally due to a decline in loan-loss provisions, as non-performing loan ratios steadily return to their historically average levels. In terms of core business, Mexico’s low interest rates continue to put pressure on net interest income nearly across the board.

But while earnings did little to impress, the third quarter nonetheless suggested a possible inflection point in credit growth.

Read more at Financial Services Briefing: “Cautiously optimistic” (November 2nd)

Taiwan’s financial regulator recently released new data on the country’s local banks, noting that asset quality was “getting better unceasingly” (which probably sounds more elegant in the original Mandarin). The island’s 37 domestically-owned banks control more than 90% of the local lending business, and despite faster loan growth this year the ratio of non-performing loans has fallen steadily. In fact, at 0.78% in September, the ratio of sour loans to assets now stands at an all-time low, an achievement few other banking systems can match these days.

The latest quarterly earnings reports for large western banks followed the same script; improving economic conditions allowed them to boost profits by slashing loan-loss reserves.

It’s a different story in South Korea. In aggregate, the country’s 18 domestic banks saw their second-quarter profits plunge by more than 60%, as bad debt provisions more than doubled versus the previous three months. What’s more, in late June South Korea’s financial regulator announced that banks were launching “creditor-led corporate workout procedures” for 65 large, troubled corporate borrowers. The restructuring will require around US$2.5bn in extra loan-loss reserves. Even considering today’s gloomy news on second-quarter profits, for South Korea’s banks it might get worse before it gets better.

In its latest Financial Stability Review, The European Central Bank has good news and bad news.

First, the good news. The ECB cut its estimate for cumulative write-downs on euro-area banks’ securities portfolios in 2007-10 by €43bn versus its forecast in December. As it happens, a brighter outlook for much-maligned CDOs contributed the most to this revision.

And now, the bad news. The ECB reckons that write-downs on loans in 2007-10 will be €5bn larger than previously estimated, thanks largely to a worsening picture for commercial property mortgages. Banks in the euro area will write down €123bn on sour loans this year and €105bn in 2011, the ECB predicts.

What’s more, given the “adverse feedback” between public finances and bank balance sheets, the risk of further deterioration in euro member states’ fiscal situation means that “the upside risks to the estimate of potential future write-downs seem to exceed the downside risks,” according to the ECB. As an article at the parent site argues, “the recent improvement in large euro-area lenders’ performance could prove only a temporary respite before sovereign fiscal concerns usher in another bout of stormy weather.”

The headline conclusion from the IMF’s latest Global Financial Stability Report is good news for banks. The organisation trimmed US$500bn from its estimate for global bank writedowns between 2007 and 2010. Lenders are now expected to write down asset values by US$2.3trn over this period, less than the US$2.8trn projected in the IMF’s analysis six months ago.

Although conditions are improving, many risks remain. One particularly worrying risk, the IMF highlights, is exposure to commercial real estate. In the US, for example, the peak in writedowns for corporate and consumer loans has already been reached, according to estimates from the IMF and Federal Reserve. Loan losses on residential real estate loans, meanwhile, should peak in the third quarter of this year. Writedowns on commercial real estate loans, however, are expected to keep rising until the second half of 2011.  

The latest report on financial stability from the Hungarian central bank features some arresting statistics on foreign-currency lending in the country. Hungarian households’ enthusiasm for Swiss franc-denominated loans played a major role in deepening the country’s recession, as a retreat from risky assets punished currencies like the forint and bolstered safe havens like the franc.

New foreign-currency loans in Hungary have slowed markedly in recent months, with borrowers favouring forints. Still, franc, yen and euro-denominated loans comprise some 70% of outstanding loans.

Even if all foreign-currency lending stopped from today, the outstanding stock of these loans would fall by only around 13% by the end of 2011, according to the central bank. With such a large share of the population exposed to foreign-exchange risk, “the vulnerability of the financial system is decreasing only gradually,” the bank laments.

A special committee convened to investigate the spectacular collapse of Iceland’s banking system delivered its report to the country’s parliament yesterday. The 2,000-page tome, in Icelandic, is here; an English summary is here. Alphaville has picked through the report in a series of posts (part one, part two).

At their peak, Iceland’s three largest banks amassed assets worth ten times their country’s GDP. They consistently reported stronger profits and capital ratios than their Nordic peers. However, the reported value of the banks’ loans proved inflated and the solidity of their equity capital illusory. “It seems likely that they would have come to grief eventually, even without a worldwide financial crisis,” concluded one chapter in the report.

Following government seizure, the banks’ assets were re-evaluated in November 2008. The write-downs alone were worth five times Iceland’s GDP.

Hit especially hard by the financial crisis, Ireland has been praised for the aggressiveness of its austerity measures. Finance minister Brian Lenihan has said that “you would have riots if you tried to do this” in other parts of Europe.

Yesterday, Mr Lenihan unveiled the eye-watering details of the toxic assets that the country’s “bad bank”—otherwise known as the National Asset Management Agency, or NAMA—will buy from the country’s struggling lenders. When NAMA was created last year, the government said it expected to assume banks’ troubled assets at around a 30% discount. Yesterday, the first tranche of assets transferred to NAMA featured a 47% haircut. What’s more, the banks must now meet new capital requirements—a 7% core equity ratio and 8% core Tier-1 ratio.

The combination of steeply discounted asset transfers and strict new capital requirements will result in significant fundraising for the banks involved. Nearly all of the lenders are likely to end up majority-owned by the state when the capital raising is complete. Only Bank of Ireland is expected to escape government control by tapping private investors. As a result, the bank’s shares soared in trading today, even though it reported a €1.5bn loss for the nine months to December. If this is Ireland’s healthiest bank, the government’s drastic actions are warranted.

Read more about NAMA here. Finance minister’s statement here. Details about new capital requirements here.