How European Banks Can Support the Recovery

A robust post-COVID-19 recovery will depend on banks having sufficient capital to provide credit. While most European banks entered the pandemic with strong capital levels, they are highly exposed to economic sectors hit hard by the pandemic.

new IMF study assesses the impact of the pandemic on European banks’ capital through its effect on profitability, asset quality, and risk exposures. The approach differs from other recent studies—by the European Central Bank and European Banking Authority—because it incorporates policy support provided to banks and borrowers. It also incorporates granular estimates of corporate sector distress, and examines a larger number of European countries and banks.

The analysis finds that, while the pandemic will significantly deplete banks’ capital, their buffers are sufficiently large to withstand the likely impact of the crisis. And with the right policies, banks will be able to support the recovery with new lending.

Using the IMF’s January 2021 projectios as a baseline, euro area banks will remain broadly resilient to the deep recession in 2020 followed by the partial recovery in 2021. The aggregate capital ratio is projected to decline from 14.7 percent to 13.1 percent by the end of 2021 if policy support is maintained. Indeed no bank will breach the prudential minimum capital requirement of 4.5 percent, even without policy support.

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Πηγή: blogs.imf.org

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