The ever-larger size of these balances increase the incentive for institutions to seek out these other assets. There is evidence that this transmission channel of quantitative easing is working. Market participants report that, at least in some areas, the appetite for risk is slowly returning, with some investors looking at how to improve their returns.
On the bright side, the average ratio of NPLs on European banks’ balance sheets is about one-third down on the 2014 figure. However, there are two caveats. First, we are coming from the very high levels in the years after the financial crisis. When we compare the current ratio with the lower pre-crisis levels, there is still a long way to go.