Nearly half of European banks hold a negative profit outlook
The number of European banks reporting a negative outlook for 2020 has risen significantly as a result of the coronavirus pandemic, as the global economy struggles to survive its impact.
Data from ratings giant S&P Global revealed 46 per cent of Europe’s banks in its portfolio now hold a negative outlook, up from just 14 per cent at the end of 2019.
The weight of geographical distribution of those with negative outlooks is uneven, with some countries holding more banks with negative outlooks than others.
As banks were forced to set aside higher provisions to account for the pandemic, a quarter of the top 35 European banks reported a loss for the first quarter. The rest saw pre-tax profit decline by a third on average year on year, S&P said.
However there were some positive outcomes emerging from the outbreak, as banks explore new ways of working and customers begin to interact with digital products more frequently.
“While largely negative, the coronavirus crisis uncovered some positives: banks’ operational resilience, the possibility of reducing property costs and more flexible employment arrangements, and an acceleration of customers’ appetite for digital channels,” said the ratings agency.
“However for most banks, core profitability will only rise if they can overhaul infrastructure and delivery, and if their stakeholders are willing to go forward with industry consolidation.”
It predicted that credit provisioning by European banks is likely to peak in the second or third quarter, with most banks setting aside sizeable provisions by the end of March but with a wide variety in the size of those upticks.
Meanwhile the introduction of government guarantee programmes and payment holidays for consumers caused lending to spike, confirming that banks are doing their part to help companies cope with liquidity shortages.
However the latest data from the government, released last week, showed the number of applications approved by lenders so far remains low, lingering around the 50 per cent mark.
More than £43bn has been borrowed by British businesses in government-backed loans so far. Of the 104,569 applications made for the coronavirus business interruption loans scheme (CBILS), just 52,275 claims have been approved.