PARIS (Reuters) – More than 360 billion euros ($ 425 billion) in loans to Europe’s largest banks have been subject to payment interruptions or other coronavirus relief measures, but the big question is whether borrowers will be able to resume their payments after support ends.
Led by governments and regulators, lenders have given millions of consumers and businesses a break to help them cope with the financial fallout from the pandemic.
But determining what proportion of loans could go wrong when the relief measures end, and in turn to what extent banks will suffer losses, is not straightforward.
Figures from the seven largest European banks that provided data on their relief measures at the end of the second quarter show that the value of outstanding loans subject to some sort of moratorium is around 15 times the total amount of provisions made. for loan losses.
Graphic: Payment holidays at a glance –
European regulators have said that banks should not automatically put money aside to cover loans subject to payment interruptions if they have some degree of confidence that normal payments will resume, but this is proving difficult to assess.
Thomas Verdin, director of banking and regulation at BM&A, an independent auditing and consulting firm, noted that some clients without financial difficulties had requested short-term relief as a precautionary measure.
“You don’t know if the loan volumes under moratorium are a sign of financial difficulties,” he said.
Although second-quarter earnings calls were dominated by questions about the impact of the loan moratoriums, banks said there were few signs of strain where payment holidays had already ended.
Santander said around € 116 billion in loans had been subject to some kind of disruption. Moratoriums on about a third of that volume expired on July 15, with the vast majority of those loans still in place.
However, borrowers who choose not to extend payment terms are those who are likely to be in a stronger financial position.
In Britain, initial three-month break offers have already been extended once, with most due to end in the fall.
Lloyds Banking Group, Britain’s largest mortgage lender, said it is only in the next few months that they will have “a clearer picture of the underlying situation”.
Italy’s largest bank, UniCredit, said that although it had made general arrangements for loans subject to moratoriums, it likely would not be able to make specific arrangements until next year.
But as a clearer picture emerges of the economic fallout from the crisis, the pressure on banks to clearer provisioning will increase.
“The timely classification and measurement of credit risk is essential for banks to build confidence in supervisors and their stakeholders,” the Bank for International Settlements (BIS) Financial Stability Institute (FSI) said in May.
($ 1 = 0.8460 euros)
Reporting by Maya Nikolaeva; Editing by Kirsten Donovan