The prolongation of the economic downturn and the materialisation of a second wave of Covid-19 across Europe “could lead to a sudden and significant increase in the level of non-performing loans in the future”, warned the European Banking Authority (EBA) in a report published on Friday 20 November on public support for the repayment of loans taken out by businesses and individuals.
According to this report, around 6% of total bank loans (i.e. EUR 871 billion) benefited from a temporary moratorium on loan repayments in June 2020. EUR 860 billion of this total consisted of loans to individuals and non-financial corporations.
The ratio of loans benefiting from a moratorium to the total number of loans was highest in Cyprus, Hungary and Portugal. In terms of volume, France, Spain and Italy were the countries with the largest moratorium loans.
Nearly half of the moratoria that were evaluated expired before September, with this figure expected to rise to 85% by December 2020. With the second wave of the pandemic, however, some countries have announced an automatic extension of the moratoria after 2020.
The EBA also notes that the ratio of non-performing loans (NPLs) subject to a moratorium was 2.5% in June, a figure “slightly lower” than the European average for NPLs of 2.9%. This was “expected”, as national support schemes have also covered loans that are still performing well, according to the EBA, which calls for vigilance.
On the same day, the European Banking Federation called for new instruments to deal with non-performing loans resulting from the coronavirus pandemic. It cited a revision of the regulation introducing a minimum threshold for covering losses on loans that become non-performing (see EUROPE 12162/11), a “more pragmatic” framework for the securitisation of NPL loans to stimulate secondary markets, and a “coherent” framework for bad banks.
See the EBA report: https://bit.ly/3nIvees (Original version in French by Mathieu Bion)