How are Expected Credit Losses of European banks impacted by increasingly common unprecedented events?
A focus on Expected Credit Losses of banks in Europe:
The study mainly focuses on the ECL-related impacts and covers:
- ECL charge impact of YE 2022 on the profit or loss and ECL allowances.
- ECL allowances: changes in coverage ratios and allocation between stages.
- Post-model adjustments/overlays.
- Forward-looking information.
- Other topics: portfolio reclassifications and change in TLTRO III amounts.
Download of the Financial reporting of European banks – benchmark study YE 2022
A focus on Expected Credit Losses in a context of unprecedented events over recent years
We have analysed the YE 2022 reports of 26 banks in 11 European countries, including AIB and BoI, to better understand the impact of the recent unprecedented events on Expected Credit Losses (ECL). This study is the sixth in its series and follows on from our fifth edition of the report released in Q4’2022.
A decrease in the ECL coverage ratio from 1.57% in 2019 to 1.38% in 2022, lower weight of post-model adjustments (14% in 2022 vs 16% in 2021) and a very high variability of downside economic scenario weighting across institutions (between 10% and 85%) are the highlights of this study release. The two most frequently applied overlays were ‘Uncertainty in the macroeconomic environment’ and ‘Adjustments/stress for vulnerable sectors: CRE/RE, Retail/distribution, Transportation, Oil and Gas, Automotive’.