CEO Noel Quinn in HSBC(Photo: HSBC Bank)

European Banks are in a Stronger Position Than in the Past 10 years Banks have been strengthening their balance-sheets. For instance, the average CET1 ratio was around 14.2% at end-2018 for banks in Germany, France, Italy, and Spain compared to 12.2% at end-2014 based on the ECB database. In addition, capital levels incorporate regulatory capital buffers, that can be used in time of stress with the green light of regulators as demonstrated by the ECB and the Bank of England recent announcement, writes DBR Morningstar in a report about the European Banks.

Here are the Norwegian Banks international bank-investments in Europa. The sttaist made by Nordic News is not coering all NBIM`s bank-investments outside Norway within Europe. (Investments in billionkroner, ownership in per cent). Holdings (shares)registered in 2019 december(Source NBIM). The Norwegian Bank investments in the major banks of Europe is 140 billion kroner registered in december 2019. The stocks have proably fallen in average 30 per cent untill today , according to Nordic News. But the bank shares have risen 100 per cent in the last three days,according to «Stock Market Today.»

HSBC Holdings 28355 2,03 %

Allianz SE 25533 2,84%

Banco Santander 16266 2,66 %

UBS Group AG 15812 3,69%

BNP Parisbas SA 13817 2,12%

Credit Suisse Group 12956 4,26%

Barclays Bank Ltd. 10661 2,94%

Uni Credit S.A. 7658 2,84%

Swedbank 4250 2,82%

Deutsche Bank 621 0,44 %

Interest Rates Down

The ECB maintained its deposit facility rate at -0.5%, but UK, Norway, US, Canada and Australia have recently announced interest rate cuts in response to a potential economic slowdown, adding to the pressure on net interest margins (NIM) for European banks. Interest rate cuts took place in countries where interest rates were above zero (Exhibit 1). We were already expecting asset growth to stagnate in 2020, and we now anticipate a stronger slowdown in volumes of new lending to individuals (including mortgages and consumer lending). We would also expect any economic deterioration to limit business growth for SMEs and Corporates, which could translate in lower lending growth for the banks. With lower margins and potentially lower volumes, the pressure on net interest income (NII) will therefore continue for European banks, writes Morningstar in a report.

Oil Price is falling

The Coronavirus Disease (COVID-19) outbreak together with a significant oil price drop are creating loss of investor confidence and significant disruptions in the financial markets. The situation is rapidly evolving and while the full impact on European banks remains uncertain, it will clearly be negative. In this environment, we expect European banks’ profitability to weaken from 2019 levels with pressure on net interest margins likely to intensify and new lending volumes to be lower than initially anticipated while net fee and commission income is also expected to be affected. Impairment charges are likely to increase, reflecting lower economic forecasts in impairment models and weakening asset quality, which will translate into weaker profitability.

New Challenges

Meanwhile, measures introduced by governments and central banks will both create challenges (eg by lowering interest rates and requiring forbearance on certain borrowers) and support banks (eg providing funding programmes, reducing counter cyclical buffer requirements). From a balance sheet perspective, banks are better positioned than at the start of the 2008 crisis, with stronger capital and liquidity and funding profiles. However, if markets remain challenging for an extended period of time, we expect some banks to need to access ECB funding to meet 2020 refinancing needs and to postpone some debt issuances. In addition, the European Banking Authority (EBA), along with national competent authorities and the ECB, is coordinating a joint effort to ease the immediate operational burden for banks.

Full use of Framework

The EBA recommends national authorities to make full use, where appropriate, of the flexibility embedded in the regulatory framework to support the banking sector. From that perspective, the EBA has decided to postpone the EU-wide stress test exercise to 2021 to alleviate any operational challenges. This will help banks to focus on and ensure continuity of their core operations, including support for their customers.

DBRS Morningstar expects the Italian banking sector to be negatively affected by the recent outbreak of the Coronavirus Disease (Covid-19) due to its ongoing significant implications for the economy, especially across the Northern part of the country, which has the richest and most productive regions.

We expect the economic slowdown and uncertainty to weigh on banks’ revenues, as a result of a combination of low rates, declining lending volumes and loan moratorium, as well as weaker fee income amidst the sharp drop in market valuations, writes DBRS Morningstar. The statics about European Banks is made by Nordic News.

CEO Christian Sewing in Deutsche Bank(Photo: Deutsche Bank Frankfurt)

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