Читать книгу EIB Investment Report 2020/2021 - Группа авторов - Страница 26

The EU banking sector entered the COVID-19 crisis on a stronger capital footing than after the global financial crisis. The current economic crisis triggered by the pandemic did not originate in the financial sector and ten years of structural transformation has put banks in a much stronger capital position and given them a much deeper understanding of the various risks and interdependencies. The average core tier 1 capital ratio in the European Union now stands at 18.3% of risk-weighted assets, 8 percentage points higher than in 2008 (Figure 21). Although the rise masks some major differences between countries, countries with a weaker capital position are still in a much stronger position than before the onset of the global financial crisis.

Non-performing loans (NPLs) might increase at a faster pace than during past crises, despite the payment deferrals put in place in most EU countries. Prior to the COVID-19 shock, NPL ratios were declining in most countries (3.2% of total loans in the euro area). However, they are now likely to increase, and will possibly do so faster than in the past two recessions as the fall in GDP is expected to be much steeper and more broad-based, with households, small businesses and companies in several economic sectors affected simultaneously. The allotment of credit lines to firms hit by the lockdown is likely to be accompanied by a rise in the risk for banks. However, the ECB has taken several measures to guarantee the liquidity of European banks, limit haircuts on debt and extend the pool of eligible collateral.

Figure 21

European banks’ core tier 1 ratio (percentage of risk-weighted assets)

Source: IMF and EIB calculations.

Banks have significantly improved the quality of their assets in recent years, but the crisis could take a toll if it wears on. After peaking in the fourth quarter of 2014 (at 7.1%), the volume of non-performing loans dropped by more than half to 3.2% in the fourth quarter of 2019. These efforts enabled banks to enter the COVID-19 crisis in a stronger position than would have been the case some years ago. In addition to consistent policy support, two factors are likely to play a role in determining the rise in non-performing loans: the length of the crisis and banks’ asset composition (Box D).

Are markets too benign in their assessment? A European Securities and Market Authorities’ report analysed the impact of COVID-19 on financial markets during the first half of 2020 and highlighted the risk of a potential uncoupling of bond and stock markets from underlying economic activity, which calls the sustainability of the current market rebound into question. Since the end of the first lockdown, risky assets have attracted investors despite the subdued economic outlook. The ample liquidity provided by central banks could be fuelling the price rises and leading to an overall disconnection from economic prospects (Bank for International Settlements, 2020).

Box E

Bank exposure and COVID-19 policy responses

The ability and willingness of banks to lend will be critical to offsetting the current recession and supporting the recovery. Firms rely on external sources for one-third of their funding, to improve their cash flow and to fund their investments. Whereas larger firms can access the capital markets, bank loans play a significant role in funding small and medium-sized companies. During the pandemic, demand has increased for short-term loans to fund working capital in particular (ECB, 2020c).

A series of monetary, fiscal and prudential policy measures have supported the supply of bank credit. Central banks have lowered refinancing rates, in the ECB’s case to as low -1% for banks that increase their lending to the real economy (ECB, 2020a). In addition, fiscal policy measures have reduced the credit risk associated with lending to businesses, for example by injecting equity, providing loan guarantees, and supplying liquidity to firms via tax deferrals and wage subsidies (see IMF, 2020a, for an overview). By June 2020, banks had granted COVID-19-related payment moratoriums amounting to 7.5% of their outstanding loans to households and companies in the European Union. Public guarantees covered new lending amounting to 1.6% of outstanding loans to households and companies (European Banking Authority, 2020).

Prudential policy measures were introduced to alleviate banks’ concerns that risky lending to businesses would erode the buffers they hold over regulatory capital and liquidity requirements (for an overview of the measures, see for instance International Institute of Finance, 2020). Several supervisors have lowered requirements that were designed explicitly to be relaxed in downturns (Drehmann et al., 2020). For example, Sweden lowered the countercyclical capital buffer requirement by 2.5 percentage points of risk-weighted assets to zero. Many other countries had less scope for such large reductions as their countercyclical buffers were smaller at the outset of the crisis (ESRB, 2020). In addition, the implementation of some new requirements was delayed. For example, banks were effectively allowed to postpone holding capital against expected but not-yet-incurred credit losses (Ehrentraud and Zamil, 2020). Here, the concern was that banks with high, perhaps overly pessimistic, estimates of COVID-related credit losses would curtail their lending if they had to set aside more capital to cover expected losses. At the same time, supervisors have encouraged banks to build their capital buffers by retaining a greater share of their earnings (ECB, 2020b).

While these measures support the supply of bank credit and reduce defaults in the near term, loan losses are likely to mount in the medium term. First, loans typically take a couple of years to turn sour after the start of a recession. Second, most fiscal and prudential policy relief programmes are set to expire within the next few years. Third, the bulk of fiscal support has been granted in the form of debt, not equity. Loans provide liquidity but increase corporate leverage. Once loan guarantees expire, many firms will therefore pose a higher credit risk than before the crisis. Accordingly, recent surveys show that banks, on balance, are seeing loans to firms as more risky, and that banks are becoming more risk averse (ECB, 2020c).

Figure E.1

NPLs and GDP growth by region in the aftermath of the global financial crisis

Source: World Bank and EIB staff calculations.

Following the first lockdown, aggregate credit losses may ultimately amount to 5-10% of banks’ exposures. One approach for estimating eventual credit losses relies on past correlations between GDP and non-performing loans, ignoring the support measures granted so far. This analysis suggests that non-performing loans to households and firms could have doubled from 2019 to about 7% of bank loans in 2020. This estimate is based on a panel regression of changes in euro area bank non-performing loans on output gaps. According to the estimate, non-performing loans rise by 0.6 percentage points if the output gap increases by 1 percentage point. That said, non-performing loans may increase later, or remain below what past trends suggest because of the scale of fiscal and monetary policy measures. If the recovery resumes soon, viable firms might be able to restart their activity, while the weight of losses will not only be carried by banks but also by governments that provided guarantees. Another approach for estimating credit losses is to infer default likelihoods from the value and the volatility of listed firms’ share prices. This estimate reflects the impact of support measures, but loss estimates depend heavily on the model used and its calibration. Using corporate equity prices as of April 2020, Reinders et al. (2020) estimate, for example, that corporate loan losses could equal 5% of banks’ corporate exposure.

If the crisis lasts longer, however, the stimulating effect of support measures on bank credit may vanish and additional risks might arise. In these programmes, sovereign nations are effectively sharing their lower credit risk with the corporate and banking sectors. But sovereign risk itself is rising as governments’ explicit and implicit liabilities are mounting. Sovereigns might themselves be dragged down by banking and corporate sector debt. This situation has proven explosive for highly indebted economies in the past, resulting in deep recessions and prolonged deteriorations in bank loan books. Figure D.1 shows that non-performing loans rose by significantly and for longer periods in places where sovereign-bank spirals developed.

If the pandemic lasts too long and triggers a major deterioration of bank asset quality, bad banks could be created to take over the non-performing loans, which could help the recovery.

Fortunately, banks are in a better position to absorb losses than at the outset of the 2007-2009 financial crisis. Bank capital levels have increased, and a great deal of effort has gone into reducing non-performing loans back to their 2007 level (European Commission, 2019).