What Is The 'Real Impact' Of Covid On European Banks?

What Is The 'Real Impact' Of Covid On European Banks?

Elke K├Ânig Photo: SRB

On Monday, Elke König, chair of the Single Resolution Board of the Single Resolution Mechanism, which oversees the restructuring of failing banks in the EU, told CNBC, “I would have thought in the beginning (of the pandemic) in spring that we might see the first real impact on balance sheets in the third or fourth quarter of this year.”

However, König pointed out that the financial aid provided by certain governments at the beginning of the Covid crisis “was starting to expire,” which meant that “further damage to Europe’s banking sector could become apparent later in 2021.” She said she was “mildly optimistic that we will not see a wave of bank failures.”

The former president of the German Federal Financial Supervisory Authority from 2012-15 said she anticipated there would be “a rise in the number of non-performing loans (NPLs) in the region, which in turn would hit bank balance sheets.” 

The ”$60,000 dollar question” for König is “when these loans could peak.”

“Until the dust has settled a bit I would expect we will see it (a rise in NPLs) in the third and second quarters of next year ... Let’s be clear, this is a unique situation,” she said.

“We will see NPLs but we will also see other industries doing great.”

“We have clearly stated that banks should stay ready, should be reasonable and have their risk management up to date. As soon as they address an emerging problem, the better,” König said.