EBA Assesses Use of COVID Moratoria and Guarantees in Banking Sector
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.
Related Links
Keywords: Europe, EU, Banking, COVID-19, Credit Risk, Reporting, Disclosure, Loan Moratorium, Loan Guarantee, NPLs, EBA
Featured Experts

María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer

Pierre-Etienne Chabanel
Brings expertise in technology and software solutions around banking regulation, whether deployed on-premises or in the cloud.

Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Previous Article
DNB Issues Reporting Updates for Banks, Maintains CCyB at 0%Related Articles
ESAs Publish Reporting Templates for Financial Conglomerates
ESAs published the final draft implementing technical standards on reporting of intra-group transactions and risk concentration of financial conglomerates subject to the supplementary supervision in EU.
EBA Publishes Report on Asset Encumbrance of Banks in EU
EBA published the annual report on asset encumbrance of banks in EU.
US Agencies Publish Updates for Call Reports, FFIEC 101, and FR Y-9C
FED updated the reporting form and instructions for the FR Y-9C report on consolidated financial statements for holding companies.
EBA Proposes Guidelines for Establishing Intermediate Parent Entities
EBA issued a consultation paper on the guidelines on monitoring of the threshold and other procedural aspects of the establishment of intermediate EU parent undertakings, or IPUs, as laid down in the Capital Requirements Directive.
EC Adopts Financial Reporting Changes Arising from Benchmark Reforms
EC published Regulation 2021/25 that addresses amendments related to the financial reporting consequences of replacement of the existing interest rate benchmarks with alternative reference rates.
BIS Bulletin Examines Key Elements of Policy Response to Cyber Risk
BIS published a bulletin, or a note, that examines the cyber threat landscape in the context of the pandemic and discusses policies to reduce risks to financial stability.
HMT Updates List of Post-Brexit Equivalence Decisions in UK
HM Treasury, also known as HMT, has updated the table containing the list of the equivalence decisions that came into effect in UK at the end of the transition period of its withdrawal from EU.
EBA Issues Erratum for Technical Package on Reporting Framework 3.0
EBA published an erratum for technical package on phase 1 of the reporting framework 3.0.
APRA Publishes FAQ on Measurement of Credit Risk Weighted Assets
APRA updated a frequently asked question (FAQ), for authorized deposit-taking institutions, on the measurement of credit risk weighted assets.
ECB Letter Sets Out Strategies to Address Issue of Nonperforming Loans
ECB published a letter from Andrea Enria, the Chair of the Supervisory Board of ECB, answering questions raised by the President of the Bundestag (the German federal parliament) on how ECB assesses the financial stability of the euro area in the context of the significant level of nonperforming loans.