The solvency of European banks, which barely suffered at the beginning of the covid-19 crisis thanks to massive public intervention, has continued to improve until the first half of this year, while profitability has experienced a very rapid recovery from historical levels low. Even so, Spanish banks are still at the bottom of the continent, with solvency figures well below the average.
These are some of the most notable elements of the annual transparency exercise published this Friday by the European Banking Agency (EBA) which, however, sends various messages of prudence towards banks, for example when distributing dividends or other remuneration mechanisms.
In the 120 banks from 25 countries of the European Union (EU) that the EBA takes as a sample in its report (and which represent more than 80% of the sector), the solvency level in the first quarter of 2020, when the shock hit of the coronavirus, it dropped five tenths to 14.3%, but since then it has already risen to 15.5% at the end of that year.
The highest quality capital ratio (CET1) and anticipating future regulatory requirements (“fully loaded”) remained at that 15.5% in the second quarter of 2021, to which the good results of the first half of the year contributed , as well as the availability of funds in the market and the financing that the European Central Bank (ECB) has continued to offer.
Only two Spanish banks above the average
The biggest problem is in Spain, where this ratio remained at 12.7%, the second worst on the continent, only ahead of Greece, with 10.8%. Above Spain, but not reaching the European average, are Portugal, with a ratio of 13.3%; Austria, with 14.1%; Italy, with 14.8% and Hungary, with 15.2%.
In Spanish banking, only Unicaja and Kutxabank exceed 15.5% of the Union average. Specifically, Unicaja is the most solvent in Spain, with a maximum quality capital of 17.7%, followed by Kutxabank, with 17% and BBVA, with 14.2%. Next are Banco Cooperativo (with 12.9%), Ibercaja Banco (12.7%), CaixaBank and Abanca (12.5% both) and Bankinter (12.2%). Below 12% are Sabadell, with 11.9%, and Banco Santander, with 11.7%.
With regard to delinquency, Spain also comes out worse off than the rest of the Old Continent, since the default rate stood at 3.1% in mid-2021, compared to the European average of 2.3%.
The EBA noted that interest rates at very low and even negative levels continue to weigh on margins
The EBA indicated that although they have decreased globally, non-performing loans have increased in the economic sectors most affected by the pandemic. The same shows its concern about loans guaranteed by the State and that are subject to a repayment moratorium, since an increasing number of them are being classified as delinquent or under special surveillance.
With regard to profitability, which sank at the beginning of the crisis to a minimum of 0.4% in the second quarter of 2020, a slow recovery began in the second half of the year, to 1.9% at end of December, which has changed scale in the first half of 2021.
The income statement in the banks in those six months, thanks in particular to the pull of the financial markets, have allowed the return on equity (RoE, in its acronym in English) to make a spectacular jump to 7.6% at the end of the first quarter and 7.4% as of June 30, levels not reached since 2017.
The EBA noted that interest rates at very low and even negative levels continue to weigh on the margins with which banks can lend money and to this is added competition within the sector but also with fintech companies.
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