19/01/2021 – 05:00 Updated: 01/19/2021 – 10:21
–
–
The financial sector will probably face one of the most decisive years of recent decades in 2021. Faced with the previous crisis, the banking system has gone from being the burden of the economy to one of its main supports, turning on the credit tap in the worst moments of the covid-19. However, much of this support was given thanks to the exceptional measures launched by governments –ICO lines and moratoriums-, whose effects will gradually disappear in the coming months. It will be then when the tide goes out and it is known which entities have problems.
To the European Central Bank (ECB) is very concerned about this situation, and therefore has set monitoring priorities which will be made official next week. Sources close to this body consulted by this means indicate that these will revolve around three axes: business model —Low profitability—, credit risk and cybersecurity, to which will be added other points such as the remains of the digitization and the climate change.
Value added
–
“There will be two major groups of problems. The first is the risks that arise in the balance sheets of banks as a result of these events [pandemia], mainly credit risk. That will keep us busy for a year or a year and a half. The second consists of the structural repercussions in terms of digitization, profitability and consolidation, “he said. Andrea Enria, president of the Single Supervisory Mechanism (MUS), of the ECB, in a recent interview.
In this way, the incipient delinquency faced by banks is one of the major concerns of the European supervisor. Credit risk has always been an obsession for the ECB and the Bank of Spain, but it had ceased to be the main one in recent years, thanks to the reorganization carried out by entities in recent years. When the SSM assumed responsibility for monitoring the main entities on the continent, they accumulated close to a trillion euros in unpaid loans. Since then, the number has dropped to $ 485 billion. With the arrival of the pandemic, the supervisor fears that non-performing loans reach 1.4 trillion in 2022, in its worst scenario.
Bad loans could grow by almost a trillion between 2021 and 2022
For this reason, the ECB has been tightening the nuts on entities since the return of summer so that they better evaluate the credits they have on the table ‘refinanced’ with moratoriums and ICO lines, and assume losses where they already have evidence that they are not going to recover the investment. According to Enria, only 21 of the 113 largest European entities were able to foresee the level at which it will escalate your delinquency in 2021.
This front is also a concern for the Bank of Spain, as explained last week in the forum Spain Investors Day your governor, Pablo Hernandez de Cos: “Entities must persist in this policy of anticipating recognition. This will facilitate that, subsequently, they can continue to fulfill their function of providing financing to the economy.” Spanish banks raised their provisions by 75% during 2020. According to the governor, this effort should be maintained in the coming quarters.
Along with credit risk, low profitability is another major concern for the ECB. The supervisor has insisted for years that entities must Reduce costs -Mergers are one of the ways- and improve its policy of granting loans to overcome the panorama of low interest rates, which according to some bankers can last until 2031.
To this challenge is added that of the digitization, which has accelerated with the pandemic. The ECB will closely monitor how institutions adapt to the new environment, combining cutting structural costs with the need to invest in systems that allow them to compete with new technology players.
Within this context, the cybersecurity, which will be one of the European body’s supervisory priorities in the coming months. Another effect of the pandemic is that ‘hacker’ attacks have multiplied. Although, according to Enria, there have been no major incidents, the ECB wants to check that banks are keeping their defenses in place to protect themselves from this growing risk.
–
