Financial Sector Shields Itself From Coronavirus Shock; Brussels Helps With Regulatory Loosening

european banks2European banks are presenting their Q1's results

In the midst of the Q1 2020 earnings season, the financial sector is beginning to protect itself from the more than likely economic shock of the coronavirus. On Tuesday it was Santander’s turn. In its results presentation, (-82% in net profit to € 331 million, -2.2% in net interest income, -2.3% in gross income) it flagged an increase in provisions of 80% to €3.9 billion euros – €1.6 billion specifically related to the coronavirus – and did not rule out rule out further provisioning. The share price rebounded almost 5% yesterday, having previously touched minimums not seen since 2003. Yesterday it was Bankia’s turn to present results, recording a net profit of €94 M, 54% more than a year earlier, after making provisions of €125 Mn for Covid19. In Europe, lenders such as HSBC and UBS also have presented their results. Meanwhile, Brussels offered European banks temporary relief from capital regulations that could boost credit by up to 450 Bn euros this year. Brussels argued that the economic damage caused by the coronavirus crisis would justify a “selective” relaxation of the regulations introduced in the wake of the 2008 financial collapse.

These measures include those already announced by the EBA and the ECB related to regulatory matters, adding some modifications which contribute to providing greater stability. These exceptional and temporary measures involve the following: adapting the timetable for implementing international accounting standards for bank capital, giving more favourable treatment to government guarantees granted during the present crisis, delaying the date of application of the leverage ratio cushion and modifying the way in which certain exposures are excluded from the calculation of the leverage ratio.

The ECB’s quarterly survey of bank credit conditions has also been published. It confirmed, in the Eurozone aggregate, the tightening of those conditions for the financing of companies and households, both in terms of consumption and housing purchases. In this context, the demand for credit from EMU households showed cracks. But that linked to companies soared thanks to their strategy of accumulating resources to absorb the impact of the economic collapse.

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