According to projections from the International Monetary Fund, several banks in Italy, Portugal and Spain face EUR250 billion worth of potential losses for business loans contracted for the next two years. Nearly one fifth of these banks corporate loans in these three European countries are at risk of default. This was a confirmed forecast as reported in the IMF' Global Financial Stability Report.
The multilateral financial agency identified as Spain as the only country with enough reserves to cover the said projected losses from the loan defaults.
According to the report, "The study is an illustration of the potential magnitude corporate risks for banking systems. Some banks in the stressed economies might need to further increase provisioning to address the potential deterioration of asset quality on their corporate loan books, which could absorb a large portion of future bank profits."
The IMF used its findings to urge the European Central Bank to pay greater attention to corporate exposure. For its part, the European Central Bank is preparing an asset quality review of banks who would be joining the Eurozone supervision regime in the coming years.
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