For European banks, it's a headache that just won't go away: the944 billion euros (US$1.17 trillion) of non-performing loans thatare weighing down their balance sheets.

Economists say the pile of past-due and delinquent debt makes itharder for banks to lend more money, hurting their earnings.European authorities are prodding lenders to sell or wind downnon-performing credit, but they're split on how to tackle theissue, and some investors are disappointed by the paceof progress.

There are various ways of calculating soured loans. The EuropeanCentral Bank (ECB) advises that non-performing asset indicatorsshould be interpreted with caution because the definition ofimpaired assets and loss provision differ between countries. Thedata used below refers to domestic banking groups and stand-alonebanks only, and excludes foreign subsidiaries and controlledbranches.

“The data for the Czech banking sector consist of the banks thatrepresent only 6 percent of credit extended by the banks operatingin the Czech Republic,” the central bank said by email.

Here are five charts using the ECB data that help explain thenon-performing loan issue and how banks are tackling it.

The problem is particularly acute in the countries that were hithardest by the sovereign debt crisis. Greece, which has yet to exitits bailout program, tops the list of non-performing loans as ashare of total credit, while Italy has the biggest pile of bad debtin absolute terms.

Italian banks have fixed goals for shrinking their bad creditlevels by selling portfolios or winding down loans. Intesa SanpaoloSpA, the country's biggest bank by market value, got a head starton its rivals two years ago and plans to accelerate the reductionof non-performing loans, CEO Carlo Messina said last month. He saysother Italian banks “are doing the right job” and should makefurther progress this year.

Italy amassed its pile of non-performing loans during years oflittle or no economic growth. The problem is compounded by thecountry's legal system, where it takes lenders longer to liquidatecollateral than in many other countries. Italy overhauled itsbankruptcy rules in October to make them quicker and moreefficient.

European banks overall have cut their non-performing loans bymore than 280 billion euros since the end of 2014. The ECB, whichsupervises most of the bloc's big lenders, says bad debt is still“a major problem” which has to be addressed lenders while theeconomy performs well.

The flow of new bad loans is declining in Italy, but the levelremains above that seen before the financial crisis. The Bank ofItaly says an improvement in the country's real estate market ishelping to reduce the risks for banks. According to the centralbank's most recent financial-stability report, key vulnerabilityindicators for lenders should continue to decrease over the nextfew quarters.

From: Bloomberg

Copyright 2018 Bloomberg. All rightsreserved. This material may not be published, broadcast, rewritten,or redistributed.