The European Banking Authority (EBA) published today a first assessment of the use of COVID-19 moratoria and public guarantees across the EU banking sector. COVID-19 related moratoria on loan repayments provided breathing space to borrowers across many countries with many banks reporting 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. While public guarantees were used to a lesser extent, they allowed banks to provide new lending to many companies impacted by the crisis. The EBA will be closely monitoring the evolution of moratoria and public guarantee schemes (PGSs) in the following quarters.
As COVID-19 spread in Europe and worldwide, Member States deployed relief measures such as moratoria on loan repayments and PGSs as well as fiscal measures, in order to mitigate the immediate impact of the sudden freeze in economic activity, support new lending and provide breathing space to borrowers. This thematic note provides the first insights into the use of moratoria and public guarantees based on data banks submitted in accordance with the guidelines on the reporting and disclosure of COVID-19 measures, using information as of 30 June 2020.
As of June 2020, a nominal loan volume of EUR 871 billion was granted moratoria on loan repayments, comprising about 6% of banks’ total loans and close to 7.5% of total loans to households (HHs) and NFCs. In total, 16% of SME loans were granted moratoria, followed by 12% of commercial real estate (CRE) loans and 7% of residential mortgage loans. The use of moratoria was widely dispersed across countries and banks, with a few banks reporting that almost 50% of their total loans to NFCs and HHs were subject to moratoria. 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.
As of June 2020, around 50% of the loans under moratoria were due to expire before September 2020, while 85% of the loans were due to expire before December 2020. However, due to the second wave of COVID-19, some countries have already announced an automatic extension of the moratoria beyond the year-end. The EBA monitors closely the developments.
Loans under moratoria are likely associated with increased credit risk. Stage 2 allocation and non-performing loan (NPL) ratios are key monitoring metrics for assessing potential risks. While the NPL ratio for loans subject to moratoria was 2.5% (slightly lower than the EU average of 2.9% for all loans), around 17% of loans under moratoria were classified as stage 2, which is more than double the share for total loans. Banks should remain vigilant and continuously assess the asset quality of these exposures.
As of June 2020, newly originated loans subject to PGSs amounted to EUR 181 billion, representing 1.2% of the total loans. These loans were granted predominantly to NFCs, which account for about 95% of the total loans subject to PGSs. Banks in Spain had the highest share of new loans subject to PGSs 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.
PGSs also have the potential to significantly reduce banks’ risk-weighted assets (RWAs). The reducing effect of PGSs on RWAs varied significantly across banks and countries. On average, banks reported the RWAs to be 18% of the exposure value for loans subject to PGSs. This compares with an average risk weight of 54% for banks’ overall loans to NFCs.
Note to the editors
- The report provides evidence on the use of COVID-19 measures as of end June 2020 as reported by a sample of ca. 130 banks. The use of such measures has evolved since this cut-off date. Given sample limitations and differences in definitions of reported values, the figures cannot be directly compared with other reports that make use of data published by various central banks and ministries on the use of such measures in respective countries.
- The analysis of the note looks at the banking sector as a whole and is not intended to provide any bank-by-bank or country assessment. On 11 December 2020, the EBA will publish the results of its Transparency Exercise, and provide detailed bank-by-bank data.
Link to full press release – Click here.