- According to a report by Oliver Wyman, European banks will face credit losses of up to € 800 billion ($ 947 billion) in the worst case over the next three years.
- If the region is not affected by a second wave of COVID-19, a sharp rise in unsecured credit losses could still cost banks in Europe around 400 billion euros, the report said.
- "The pandemic is unlikely to paralyze the European banking sector, but many banks will be left in a" pending state "with very poor returns," said Oliver Wymans co-director of EMEA financial services.
- You can find more stories on the Business Insider homepage.
The effects of COVID-19 on the European banking landscape have not yet been fully clarified.
The pandemic will continue to have an impact and will have a far-reaching impact on European banks current report by the consulting firm Oliver Wyman.
In a worst-case scenario, banks in Europe can expect credit losses of up to EUR 800 billion (USD 947 billion) – the report said.
Despite the enormous number, the report states that these credit losses are "manageable" since the amount would be less than 40% of those seen after the global financial crisis and the 2012-2014 euro area crisis.
In a baseline case, banks can expect credit losses of around € 400 billion ($ 473 billion), which is about 2.5 times the level of the past three years – a time of relatively lower losses.
If the banks were worst hit, the non-performing credit ratio would rise to 10%, which would affect banks' profitability.
"The pandemic is unlikely to paralyze the European banking sector, but many banks will be left in a" pending state "with very poor returns," said Christian Edelmann, co-head of Oliver Wyman's EMEA financial services.
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COVID-19 has hit the retail and service businesses of many European banks, as the results of the second quarter this week show.
Barclays' net profit decreased 66% and the Swiss bank provided $ 4.7 billion as a provision for corona virus losses. Net profit from Deutsche Bank fell short of analysts' expectations, and Credit Suisse overhauled much of the business structure effective August 1.
"Banks need to step up their cost-cutting efforts and carefully manage credit losses, but the industry is currently unlikely to need radical restructuring, as in the global financial crisis," said David Gillespie, executive consultant in the UK and Ireland.
However, the report suggests that circumstances could worsen as the banking sector was supported by government support programs.
Investment banks have benefited from helping companies borrow trillions during the pandemic.
According to the report, the rise of neobanks using a digital-first approach is helping to streamline processes and significantly lower the costs of established banks.
"The business units must work much more closely with the technology teams and significantly simplify the products and processes," the report said.
"Without this, it is not possible to automate back office tasks and decommission systems that actually release value."
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