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One year after the introduction of State-Guaranteed Loans (SGLs), 39% of managers of the SMEs that took them out have indicated that they have made little or no use of the funds, whilst barely one-third stated that they had used the majority of their loan. This precautionary behaviour led companies to hoard all or part of their SGL in order to build up a liquidity reserve under favourable terms. Meanwhile, the share of managers who expect to repay their loans in full over several years has increased (41% in September 2020 to 56% in April 2021), whilst the proportion expecting to make at least partial repayment in 2021 has decreased (from 36% to 23% respectively)
The economic shock caused by the Covid-19 pandemic has resulted in a sharp increase in banks’ cost of risk. This has been particularly steep for the Spanish, Italian and Portuguese banking systems, which are notably oriented towards retail banking and have relatively high levels of exposure to the sectors most affected by the pandemic. Moreover, the effects of the sanitary crisis on the cost of risk have been exacerbated by the forward-looking approach of the IFRS 9 impairment model for financial instruments, which has been in force since 1 January 2018. Under this accounting standard, it is not the defaults themselves that give rise to the recording of provisions for impairment, but the mere expectations of such defaults
While the first repayments of State-Guaranteed Loans should take place at the end of March 2021, the amounts granted reached a cumulative sum of EUR 132.2 bn as of 12 February 2021 according to the Banque de France. Since their introduction, the SGLs have benefited more broadly the branches most penalised by the COVID-19 pandemic. Unsurprisingly, the accommodation and food service activities, which are still subject to administrative closures, are thus among those that have made the most intensive use of SGLs[1] in terms of amounts granted and number of beneficiaries. Our graph illustrates the general observation that the greater the drop in value added in 2020, the greater the use of SGLs
Due to the lengthening of the health crisis, the European Banking Authority decided on 2 December 2020 to reactivate its guidelines on legislative and non-legislative moratoria on loan repayments. This decision aims at easing credit instructions criteria for granting moratoria. Moratoria granted in relation to the COVID-19 pandemic before 31 March 2021 will not automatically be considered as a forbearance measure. However, such moratoria must have benefitted a sufficiently large set of borrowers and their granting must have been based on a criterion other than solvency. The beneficiaries of moratoria that aim at preventing a default will no longer automatically be considered in default
While Italy's real GDP fell by 12.8% q/q in the second quarter of 2020 (after -5.5% in the first quarter), the non-performing loan (NPL) ratios of sectors of activity that have been subject to administrative closures, in particular, continued to decrease. Surprising as it may seem, this development can be explained. On the one hand, public guarantees on new loans have contributed to increase the outstanding amount of "healthy" loans to these sectors[1], diluting NPL ratios. On the other hand, sales of NPLs continued in 2020 (albeit at a slower pace than in 2019), which reduced the outstanding amount of NPLs and contributed to the cleaning up of bank balance sheets
CaixaBank and Bankia, respectively the third and fourth largest Spanish banking groups in terms of CET1, formalized on September 3, 2020, the opening of negotiations for a potential merger. If it materialized, this operation would consolidate the Spanish banking system. The level of concentration of the latter is comparable to that observed on average in the euro area, following two successive waves of consolidation between 2008-2009 and 2012-2013 from which CaixaBank and Bankia themselves emerged. The question is whether or not this could be the prelude to a broader movement of concentration that the ECB has been in favour of since several years. Indeed, the banking supervisor sees consolidation as a way to improve the financial profitability and resilience of banks1
The analysis of banks' business model responds to strategic as well as regulatory needs. It can also contribute to studying the effects of monetary policy, amongst other things. However, no harmonized definition exists in the literature. The authors therefore regularly use hierarchical cluster analysis to objectively classify banks according to their business model. These empirical, algorithm-based approaches rely heavily on balance sheet variables. Still, the distribution of bank sources of income and assets under management are also relevant variables. We therefore perform our own classification of European banks according to their business model using all these variables
Following the example of the ECB for the significant institutions[1], the Bank of Italy has decided to recommend to banks under its direct supervision (the less significant institutions) not to distribute or commit distributing dividends at least until 1 October 2020[2]. Moreover, share buy-backs will have to be restricted and less significant institutions in Italy will have to adopt "prudent and farsighted" variable-remuneration policies. The five largest Italian banking groups, which account for almost half of the total assets of the domestic banking system, are thus likely to mobilize (in addition to the benefits that were not intended to be distributed) EUR 4.8 billion of additional common equity Tier 1 in 2019[3], representing 4.1% of its current outstanding amount (EUR 116
In a period of declining interest rates, the interest margin on transactions with customers has widened due to greater inertia on the downside of yields on bank assets compared to that of the cost of resources. Portuguese banks, however, hold a large share of variable rate loans which tends to accelerate the downward adjustment of the yield on the loan portfolio. In a context of durably low interest rates and close to zero cost of resources from customers, the sustainability of the interest margin will depend essentially on the ability of Portuguese banks to maintain the current rates applied on new loans[1]. A further decrease in interest rates on new loans would drive the margin on new transactions well below the margin on outstanding amounts
For the first time since 2010, the five major Portuguese banks returned to profitability in 2018. The main factors behind this swing into profits were a faster decline in interest expense than in interest income, and tight control over operating expenses and the cost of risk. The widening of the net interest margin offset the decline in the outstanding amount of bank loans, increasing net interest income. Other things being equal, the decrease of the interest rates also contributed to the reduction in the cost of risk and the clean-up of bank balance sheets. Although the non-performing loan ratio and outstanding amount were halved, they remain at high levels
