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We have analysed the annual reports of 26 banks in 11 European countries to better understand the impact of Covid-19 on their financial performance. This study is the second edition and follows on our first edition of the report released in September 2020. The study is based on audited information disclosed in the annual reports of participating banks published until 1 April 2021.
A focus on Expected Credit Losses
The study mainly focuses on the ECL-related impacts of Covid-19 on the European banking industry. It covers:
- The extent to which the Covid-19 pandemic has impacted the operating profit or loss, and the 2020 ECL charge.
- The consequences on the ECL coverage ratios and the ventilation of gross credit exposure and ECL allowance by stage.
- What European banks disclosed on their post-model adjustments and macro-economic assumptions.
The evolution of the scale of provision for expected credit losses in 2020 shows without surprise that banks are still expecting tough times in the months and years ahead concerning the performance of their loan books. The long-term impact of the pandemic is still difficult to anticipate, confirmed by the significant level of post-model adjustments applied by banks. The success of vaccination programs in Europe and the recovery of sectors the most impacted by the crisis, such as hospitality, retail, and aviation, will be scrutinised in the second half of 2021 to reassess the risk of credit losses on the loan portfolios of European banks.
Michael Tuohy
Partner, financial services audit & assurance
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