European banks have maintained a solid level of capital and liquidity in 2021 to face the risks to which the Covid-19 pandemic exposes them, estimated the European Central Bank (ECB), acting as the single banking supervisor, when it unveiled the results of the ‘SREP 2021’ exercise on Thursday 10 February.
In view of this situation and the uncertainties facing the economy due to the long-term impact of the pandemic, the ECB has slightly increased the average bank capital requirement to 15.1% of risk-weighted assets (from 14.9% in 2021) and the CET1 capital requirement to 10.6% of risk-weighted assets (from 10.5% in 2021).
During the pandemic, “banks have contributed to the resilience of the euro area economy and continued to provide credit to households and businesses”, although they “need to remain aware of the possible consequences for their balance sheets and strengthen their risk control and governance frameworks in particular”, said Andrea Enria, chair of the Single Supervisory Board, in a statement.
In particular, the ECB identified shortcomings in the credit risk management of several financial institutions. Banks with insufficient provisioning will be subject to specific follow-up actions.
While the stock of non-performing bank loans has continued to fall (€402 billion in September 2021, or 2.2% of the total stock), the European supervisor reports signals of a deterioration in credit quality, especially in those sectors that have benefited most from emergency budgetary support.
“These developments should be monitored carefully”, the ECB warns.
Finally, in terms of governance, the European supervisor reports weaknesses in the ability of some boards to manage risk and a lack of attention to the issue of diversity.
See the results of the 2021 ‘SREP’ exercise: https://aeur.eu/f/b4 (Original version in French by Mathieu Bion)