Between March and June, the European banking sector remained highly capitalised, had ample liquidity and continued to lend to the real economy, the European Banking Authority (EBA) said on Friday 11 December as it unveiled its 2020 financial risk and transparency analysis, conducted on a panel of 192 banks in 26 European countries, including six UK financial institutions.
The banks studied for the report held on average 14.6% as highest quality equity (CET1) of the total capital held at the end of March and 15.0% at the end of June, in accordance with the regulatory requirements in force. This average level was 14.4% of total capital held at the end of the first quarter and 14.7% at the end of the second quarter, depending on the regulatory requirements that will be applicable at the end of the transition period.
Regarding the liquidity ratio, the average level observed was 148.9% at the end of the first quarter 2020 and 166.0% at the end of the second quarter.
Over the period under review, the level of non-performing loans (NPLs) remained low at 3.0% of total outstanding loans in March and 2.9% at the end of June. Nevertheless, the EBA observes “signs of deterioration” and “asset quality is expected to deteriorate materially over the next quarters”. It notes, for example, that the exposure of the banks they studied to depreciated quality loans (classified under IFRS 9 stage 2 and forborne exposures ) “has increased markedly”. In addition, the phasing out of COVID-19-related measures, such as moratoria on loan repayments and public guarantees, will also likely affect asset quality.
In order to cope with the second wave of Covid-19, the European authority has reactivated its April guidelines on moratoria on bank loan repayments until 31 March 2021 (see EUROPE 12615/22).
See the risk analysis and the 2020 transparency exercise: https://bit.ly/346jPxv (Original version in French by Mathieu Bion)