The extent of contingent liabilities and non- performing loans in the EU Member States

The extent of contingent liabilities and non- performing loans in the EU Member States

The extent of contingent liabilities and non- performing loans in the EU Member States

The FINANCIAL -- Data on contingent liabilities and non-performing loans of EU governments for the year 2016 have been published on January 29 by Eurostat, the statistical office of the European Union.

This publication includes data on government guarantees, liabilities related to public-private partnerships recorded off-balance sheet of government and liabilities of government controlled entities (public corporations) classified outside general government. Contingent liabilities are only potential liabilities. They may become actual government liabilities if specific conditions prevail. Similarly, non-performing loans (government assets) could imply a loss for government if these loans were not repaid. Thus, this data adds further transparency of public finances in the European Union by providing a more comprehensive picture of potential impacts on Member States' financial positions.

High level of government guarantees in Finland and Austria

The most common form of contingent liabilities are government guarantees on liabilities and occasionally on assets of third parties. The highest rates of government guarantees were recorded in Finland (28.0% of GDP) and Austria (20.5%) followed by Germany (14.3%). The lowest shares, less than 1%, were noted in Slovakia (0.03%), the Czech Republic (0.3%), Bulgaria (0.5%) and Lithuania (0.9%). In all EU Member States, the central government is the biggest guarantor, although in Denmark, Finland and Sweden there are high levels of local government guarantees. In several countries - Belgium, France, Hungary, Ireland, Luxembourg, Poland, Portugal and Spain – a major part of the guarantees is towards financial institutions and were often granted by government in the past in the context of the financial crisis.

Portugal and Slovakia with largest contingent liabilities related to off-balance public-private partnerships

In all EU Member States, liabilities related to off-balance public-private partnerships (PPPs), which are long-term construction contracts where assets are not recorded in government accounts, were below 4% of GDP. Portugal had the highest share (3.2% of GDP), followed by Slovakia (3.1%), Hungary (1.7%) and the United Kingdom (1.5%). In 2016, nine countries reported no liabilities related to off-balance PPPs: Bulgaria, the Czech Republic, Germany, France, Luxembourg, Poland, Romania, Slovenia and Sweden. In many EU Member States, the off- balance PPPs were observed at the central government level, whereas in Austria, Belgium and Spain, they were mostly related to state government. In five countries – Croatia, Estonia, Finland, Italy and Latvia – the off-balance PPPs were exclusively undertaken by local government.

Level of liabilities of public corporations classified outside general government higher in countries with financial institutions under government control

The level of liabilities of public corporations classified outside general government differs widely in the EU Member States. There is a group of countries with significant amounts of liabilities such as Greece (144% of GDP), the Netherlands (104%), Germany (101%) as well as Cyprus (90%) and Luxembourg (82%). The main reason for the high level of these liabilities is that the data include government controlled financial institutions, among other public banks. Most of these liabilities consist of deposits held in these public banks by households or by other kinds of private or public entities. It should be noted that, in general, financial institutions report high amounts of debt liabilities, however they also have, at the same time, significant level of assets which are not captured in this data collection.

At the opposite end of scale, overall small amounts of these liabilities are recorded in Slovakia (1.3% of GDP), Lithuania (5.9%), Romania (7.4%), Croatia (10.4%) and the Czech Republic (10.8%). Most of these countries have negligible liabilities related to financial institutions, even below 1%, as in Lithuania (0.1%) and Slovakia (0.3%).

Slovenia holds the highest level of non-performing loans

Slovenia has the highest stock of non-performing loans (asset) of general government. It stands at 5.9% of GDP, ahead of the three other EU Member States that recorded a share higher than 1%: Portugal (1.5%), the Czech Republic (1.4%) and Austria (1.1%). For Slovenia as well as for Portugal, Austria and Ireland, the majority of non-performing loans refer to loans of financial defeasance structure(s) which are classified in the general government sector. In the case of the Czech Republic, the figure mainly refers to the loans of national development banks classified in general government and to intergovernmental loans. Data are not yet available for four countries – Belgium, Cyprus, Croatia and France.