(Adds details, Oliver Wyman report)
LONDON, July 21 (Reuters) - Economic fallout from the
coronavirus outbreak will cause a sharp rise in loan losses at
European banks, two research reports showed on Tuesday, with
more than 400 billion euros ($458 billion) of losses estimated
in the next three years.
Loans to small and mid-size enterprises and unsecured
consumer loans in Europe, which grew by more than 20% between
end-2014 and June 2019, were seen most at risk, a report from
credit ratings agency Moody's Investor Service showed.
Separately, a report from Oliver Wyman said European bank
credit losses could spiral to 800 billion euros if the region
succumbed to a second comprehensive lockdown to curb the spread
of the virus.
These credit losses compare with the euro zone crisis of
2012-14, but represent less than 40% of the losses experienced
in the global financial crisis of 2008-10, the consultancy said.
"The pandemic is unlikely to cripple the European banking
sector, however many banks will be pushed into a 'limbo state',
with very weak returns," Christian Edelmann, Co-Head of EMEA
financial services at Oliver Wyman said.
"Ambitious restructuring efforts will be needed, but to
succeed they will need engagement and support from policymakers
and regulators," Edelmann said, pointing to possible benefits
from consolidation and creation of a single banking market.
The Moody's report assessed the exposure of 14 large
European banking systems to SME and unsecured consumer loans,
using data gathered by the European Banking Authority (EBA).
According to the report, banks in southern Europe are most
exposed to SMEs, while large banking systems like Germany and
the UK, have exposures below the 15% European average.
Exposures to unsecured consumer loans are highest for banks
in Spain, Austria, France and the UK.
The coronavirus economic downturn is expected to drive a
deterioration in loan quality, with the percentage of problem
loans estimated to rise by between 100-300 basis points by 2022
for most European banks, Moody's added.
Government stimulus will not completely offset the financial
and economic damage inflicted by the pandemic and the full
extent of loan quality deterioration will be revealed only once
these measures are unwound, the agency said.
Problem loans in these segments at European banks were 8.5%
and 5.6% respectively at the end of June 2019, following a
decline from 18.5% and 8.1% respectively in June 2015. This
compares with 2.1% for larger corporates and 2.7% for
residential mortgages.
($1 = 0.8740 euros)
(Reporting By Sinead Cruise, editing by Huw Jones)