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DatabankFebruary 8 2021

Nine banks take up ECB capital relief measures

Annual supervisory assessment finds that while the European banking sector remains resilient, Covid-19 credit risks could still pose challenges. 
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Nine eurozone banks saw their capital buffers fall below the European Central Bank’s minimum capital requirements in 2020, taking advantage of temporary measures designed to support lending during the Covid-19 pandemic. Under the temporary rules, the ECB will allow banks to operate with capital levels below its usual capital requirements until the end of 2022, alongside other measures. The ECB did not name the banks.

Commenting on results of the ECB’s 2020 Supervisory Review and Evaluation Process (SREP), Andrea Enria, head of supervision at the ECB, said: “Since the third quarter of 2020, banks under our supervision have been well capitalised. Only a few banks have dipped into their buffers so far.” The common equity tier 1 (CET1) ratio – a key measure of balance sheet strength – across eurozone banks directly supervised by the ECB reached an all-time high of 15.2% in the third quarter 2020.

Mr Enria said he expects to see more banks using loss-absorption measures once Covid-19 credit losses begin to materialise. He commented: “Once this happens, and where necessary, I would encourage banks to make use of all loss-absorption room made available to them.” The ECB is forecasting a seven per cent drop in GDP for 2020, with the economy only expected to return to pre-crisis levels by mid-2022. The ECB will be monitoring levels of credit risk as a priority area during 2021, as the economic situation develops. It gave 80% of directly supervised banks recommendations on measures to improve their management of credit risk.

ECB data also demonstrates the impact the pandemic has had on bank staffing during 2020. In the early days of the pandemic affecting Europe, in March 2020, eurozone banks reported that 22.4% of bank branches were closed. This has fallen to 3.6% as of September 2020. The percentage of bank staff working remotely reached 67.1% in March, compared with 8.7% in February 2020. As of September, 41.4% of bank staff were continuing to work from home.

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