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Key takeaways from Q1 results of the 12 largest banking groups in Europe

by LLB Editor
29th May 20 12:01 pm

Moody’s has published a report providing key takeaways from the quarterly financial results of 12 of the largest banking groups in Europe: Erste, GCA, ING, DB, Commerzbank, Intesa, BNPP, Unicredit, HSBC, Santander, Barclays, BBVA.

With the exception of Intesa, the other 11 banks showed a substantial drop in earnings, ranging from around 33% for the two French banks to sizeable losses reported by BBVA and Unicredit, and to a lesser extent, Commerzbank. Credit cost related to the coronavirus outbreak was a common driver behind this quarter’s poor earnings performance across banks.

  • Mixed revenue performance but fee income growth and cost control supported pre-provision income. With the exception of GCA, Intesa, Barclays and BBVA, all banks reported muted or negative net operating income growth, largely driven by lower trading gains while fee income was generally supportive. With some exceptions, the evolution of net interest income was subdued refecting the low interest rate environment in Europe and other markets. Active cost control aided pre-provision income, with costs remaining broadly flat or declining. Only GCA and ING reported an increase in operating expenses.
  • Reported loan loss charges varied significantly across banks. Loan loss provisions jumped in the quarter as banks revisited their expected credit losses to incorporate coronavirus-driven macroeconomic scenarios, as required by IFRS9. Broadly stable asset quality indicators helped contain recurrent provisions. Cost of risk ranged from around 0.15% at Erste to 2.57% at BBVA. Reserve builds in future quarters will reveal the extent to which banks are taking a consistent level of conservatism to assess future credit losses.
  • Capital ratios eroded to different degrees, reflecting poor profitability and risk weighted asset inflation. In addition to COVID-19 provisions, higher loan balances and market risk factors negatively affected capital ratios which was only partially compensated for by dividend retention. Capital relief measures by regulators have led to increased capital buffers compared to the end of 2019, with the exception of BBVA. Pro-cyclicality of riskweighted assets (RWA) will further affect those banks more reliant on internal models. Ample capital buffers provide room to cope with unexpected credit losses related to the coronavirus outbreak with Intesa and GCA showing the most headroom.
  • Liquidity remained sound. Liquidity stood well above regulatory requirements across banks with liquidity coverage ratios (LCR) ranging from 127% at ING to 156% at HSBC. The need to tap capital markets at overly high spreads has subsided due to central banks’ measures as well as relieving funding strain by extending MREL target deadlines.

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