EBA published the first assessment of the use of COVID-19 moratoria and public guarantees across the banking sector in EU. The report is intended to document the use of the support measures and start monitoring possible consequences in terms of the maturity, potential disruptions due to a cliff edge effect, and the evolution of asset quality of these exposures. The relief measures provided the necessary means to meet liquidity and operational needs during the crisis. Many banks reported that loans under moratoria represented a significant share of their total loans. The use of moratoria was particularly widespread for SMEs and commercial real estate but were also important for mortgage loans in some countries. Public guarantee schemes were used to a lesser extent, though they allowed banks to provide new lending to many companies impacted by the crisis.
The report is based on data banks submitted in accordance with the guidelines on the reporting and disclosure of COVID-19 measures, using information as of June 30, 2020. For banks in some countries, however, the data might not necessarily provide a full picture on the use of public guarantees. This is because of the delayed or partial implementation of the reporting guideline in these countries. The report considers moratoria-related data from 132 banks and public guarantee schemes-related data from 126 banks. It is evident that the use of moratoria, by providing the necessary liquidity and removing the pressure of loan repayments during a period of increased liquidity needs, has avoided, to a great extent, liquidity shortages. Nonetheless, the disruption caused in some sectors by the COVID-19 pandemic and the confinement measures will inevitably drive the default rates higher in the coming months. Therefore, banks need to engage early with their clients to assess the situation of each borrower and apply sound and proactive policies to fairly assess the risk profile of debtors and, where suitable, take appropriate actions.
As of June 2020, a nominal loan volume of EUR 871 billion had been granted moratoria on loan repayments, comprising about 6% of banks’ total loans and close to 7.5% of total loans to households and non-financial corporations. In total, 16% of SME loans were granted moratoria, followed by 12% of commercial real estate loans and 7% of residential mortgage loans. Cypriot, Hungarian, and Portuguese banks reported the highest share of loans subject to moratoria. French, Spanish, and Italian banks reported the highest volumes of loans subject to moratoria. Loans under moratoria are likely associated with increased credit risk. Banks should remain vigilant and continuously assess the asset quality of exposures. Newly originated loans subject to public guarantee schemes amounted to EUR 181 billion, representing 1.2% of the total loans. Banks in Spain had the highest share of new loans subject to public guarantee schemes relative to total loans, while banks in France, Italy, and Portugal also reported material volumes. Banks in other European countries reported very low volumes, and some countries had none.
The report highlights that, going forward, competent authorities should closely monitor the trajectory of the exposures under moratoria and public guarantee schemes and evaluate possible cliff-edge effects or other associated risks, considering further potential measures that may need to be adopted if the length and magnitude of the crisis turn out to be worse than expected. A consequence of public measures is the increase in the sovereign-bank nexus, due to the increased exposure to sovereigns caused by loans subject to public guarantees. Transparency and the flow of information in a timely manner are paramount to enable relevant stakeholders to be well-informed and to provide adequate information for proper assessment of the identified risks. To achieve this, the EBA transparency exercise, which will be published before the year-end, will provide data at a bank-by-bank level on EBA-eligible moratoria, other forbearance measures and asset quality. Although the regulatory treatment of moratoria set out in guidelines on moratoria on loan repayments has ceased to apply for new payment moratoria applied after September 30, 2020, the effects of existing moratoria and public guarantee schemes will remain in the following quarters.
Keywords: Europe, EU, Banking, COVID-19, Credit Risk, Reporting, Disclosure, Loan Moratorium, Loan Guarantee, NPLs, EBA
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