Miguel Ríos had a bustling enterprise operating 4 karaoke bars in Barcelona till the coronavirus compelled him to close them. He took out bank loans worth €80,000, equal to $96,000, put his 10 staff on a authorities wage-support program and hoped for one of the best.
Nearly a yr later, with doorways nonetheless closed, Mr. Ríos worries his enterprise will fold, leaving him with a pile of debt and exposing his banks to losses. “We are resisting thanks to savings and bank loans, but we can’t keep like this much longer,” the 59-year-old entrepreneur mentioned.
His story is echoed throughout Europe as small companies battle to remain afloat via the pandemic. Their survival is vital for the area’s banks, which collectively have over €2 trillion on loan to them—40% of the lenders’ whole enterprise loan books.
Total, lenders have significantly cleaned up dangerous loans from the earlier disaster, however many are nonetheless caught with souring portfolios. They’re additionally struggling to generate profits in a negative-rates atmosphere.
Regulators worry a brand new—and doubtlessly larger—wave of defaults may ship banks scrambling to cowl losses. Weaker ones may require state assist to outlive. Andrea Enria, the pinnacle of banking supervision on the European Central Bank, has warned that dangerous loans within the eurozone may soar to as excessive as €1.four trillion—greater than throughout the aftermath of the monetary disaster—if the financial system contracts greater than anticipated.