Europe's banks are expected to have to set aside billions for potential loan losses as well as take profit hits because of the coronavirus crisis when they start reporting results over the next two weeks.
Regulators have said they will be lenient in enforcing accounting rules on expected loan losses, but there is pressure on European banks to be realistic about the looming downturn. Lower profitability than their Wall Street rivals will mean European banks have less room for maneuver.“European banks don’t have that luxury of revenue and income to absorb such significant increases” in loan loss provisions, he said. “That in turn that will dictate their approach.
Italian banks, which have worked hard to tackle the legacy of previous recessions, are expected to start raising provisions against loan losses in the first quarter as the economy heads for a contraction which the International Monetary Fund estimates could reach 9.1% this year, analysts say. Spain’s banks will also report an increase in provisions, said Nuria Alvarez, analyst at Madrid-based brokerage Renta 4.
The Bank of Spain said on Monday that the country’s tourism- dependent economy could shrink as much as 12.4% this year if the coronavirus lockdown lasts 12 weeks.
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