New Problems for the EURO ?

The problems for the EURO does not seem to end. After the trouble with Cyprus now other small countries with huge banking sectors are in the spotlight – Luxemburg and Malta. The quality of the loans that their banks have granted will be a real litmus test for the stability of their economies. The problems for Cyprus have been caused by the fact that several of the country’s biggest banks have invested heavily into the drowning Greek economy. Bank of Cyprus’s non performing loans shot up to 17 percent of its total book at the end of September last year. Cyprus Popular Bank , known as Laiki, which is being shut down as part of the Cypriot bailout, almost quadrupled its loan loss provisions to 400 million euros in the third quarter of 2012.


Officials from the small duchy, whose banking sector is 22 times higher than its GDP have been quick to point out that any comparison with Cyprus are misplaced. According to them the Luxembourg banks liabilities are much less than what appears on their balance sheets. Marc Saluzzi, who is a chairman of the Association of the Luxembourg Fund Industry stated that.
“If you look at Luxembourg, our center is much more diversified; it is run by 142 banks, which are essentially subsidiaries of very large foreign banks, with solvency ratios above 15 percent. We are agents and not principals.” In addition to that IMF released report according to which just 0,4 percent of the loans in Luxembourg are non-performing.


After Luxembourg, Malta has the second largest banking sector in Europe – Almost eight times the country’s GDP. It is dominated by two large lenders – Bank of Valleta and HSBC Malta. If trouble hit, HSBC Malta would likely have the support of its parent HSBC (HSBA.L), Europe’s largest bank, leaving Bank of Valletta with assets equivalent to around 1.4 times GDP, which does not seem that scary Maltese Banks have around 8,2% non performing loans according to IMF.

Despite the generally optimistic picture in Malta and Luxembourg another EU country seems to be approaching an inevitable bailout. In contrast to Cyprus, Slovenia’s banking system is not large – around 1.4 times as big as the economy – and there are negligible foreign depositors.

But the Slovenian banks, most of them state-owned, are crippled with bad loans, which reached 14.4 percent of their loan books last year.

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