May 26, 2020 12:08 pm

EBA fears significant increase in NPLs

Corona crisis could cost banks 3.8 percent of core capital

Europe’s banks will significantly feel the consequences of the Corona crisis. According to estimates by the European Banking Authority (EBA), there will above all be a significant increase in defaulted loans. The EU authorities expect that in an extreme case, banks could lose up to around 3.8 percentage points of their core capital, equivalent to around 315 billion euros.

The impact of the crisis on asset quality is a major concern for the EBA. In recent years, it says, European banks have increasingly moved into riskier areas, such as lending to small and medium-sized firms and consumers. Many loans are now in sectors that have been particularly hard hit by the spread of COVID-19.

At the same time, the bank supervisors also emphasize that financial institutions are currently in a much better position in terms of equity and liquidity than they were before the financial crisis. The number of NPLs has also more than halved to around 530 billion euros. EBA

This post was written by Jens Secker

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