D.The EU banking authority EBA warns of shrinking profits for financial institutions and a renewed increase in problem loans on their balance sheets in the face of the second wave of pandemics. Although the capital and liquidity position of the financial institutions is still solid despite the Corona crisis, the authority said on Friday when it presented its annual risk assessment for the industry. “However, the economic uncertainty persists and profitability is at a record low level,” wrote the experts. There are also signs that the quality of assets on balance sheets is deteriorating.
According to the EBA, the return on equity (ROE) in the industry fell to 0.5 percent in June. A year earlier it was 6.7 percent. Above all, this is due to increased costs for value adjustments. To a lesser extent, lower revenues would also have played a role.
Credit quality deteriorates
The EBA anticipates that the credit quality will deteriorate substantially in the coming quarters due to the expiry of support measures such as government guarantees. Banks should therefore as quickly as possible switch back on struggling borrowers in order to find solutions.
In its report, the EBA also pointed out that around 50 percent of the institutions’ involvement in large companies is potentially linked to climate risks. However, only 29 institutes took part in this voluntary survey. In total, the EBA analyzed the figures from 135 European banks.