Banks in Europe have supported during the pandemic, but they can end badly
They avoided a liquidity crisis and have helped companies and households with cheap money from the ECB in the midst of Covid-19, but they face 2021 with uncertainties derived from bad loans or difficulties in distributing dividends to their shareholders
Ten years after emerging from the last global financial crisis, which mainly affected advanced economies, in 2020 the world has once again been plunged into serious economic problems, which have been caused by having to apply confinement measures to stop the health emergency of the pandemic.
These measures have stopped or slowed down economic activity, by prohibiting or restricting travel, interrupting factory production, closing shops, restaurants, gyms, museums, etc.
The European Central Bank (ECB) and governments have put in place measures to support lending to strong businesses and protect jobs and the economy.
They have avoided a liquidity crisis, and now it is a question of avoiding a solvency crisis.
The risk measurement agency Moody’s considers that the outlook for European banks for 2021 is negative due to the slow economic recovery, the increase in problem loans and the fall in their profitability due to “chronic inefficiency”, defaults and the drop in intermediation margins.
In 2021 a notable increase in company insolvencies and thus in non-performing loans in European banks, which already had a very low profitability before this crisis, is expected.
Banks have avoided a liquidity crisis by passing cheap money that the ECB lends to companies and households with the guarantees and endorsements of European governments.
But now they have loans on their balance sheets that some companies and households will not be able to repay, bad loans.
The volume of non-performing loans could rise to 1.4 trillion euros, in the worst case, a figure higher than that of the financial crisis, according to the ECB.
Do not accentuate the problems that affect banks or hang debtors
With the measures of the ECB and the EU, the first depreciations in sovereign debt portfolios at the beginning of the pandemic were reversed, unlike what happened in the previous financial crisis, which triggered the sovereign debt crisis in southern countries of Europe.
The ECB decided this year to buy € 1.85 trillion of public and private euro area debt until the end of March 2022.
Until June 2022 it will offer banks very cheap liquidity and admit more collateral to ensure that all banks in all countries can obtain it.
But he does not recommend distributing dividends or repurchasing shares to remunerate shareholders, but rather keeping as much capital as possible to face possible losses.
Banks must find solutions for clients who cannot repay loans, for example, by lengthening the repayment period.
The European Commission (EC) wants to prevent banks from accumulating non-performing loans and is going to encourage further development of secondary markets for these assets at risk, which would allow banks to eliminate these bad loans from their balance sheets and strengthen the protection of loans. debtors.
G. Febres
Source: International media and EFE agency
