“European banks report stability and reduced risk emerging after previous turbulence” – Forvis Mazars
Forvis Mazars Group, the international audit, tax and advisory services partnership, releases the eighth edition of its Financial reporting of European banks study. The report highlights the latest figures from expected credit loss (‘ECL’) levels based on 2023 annual reports, which show stability and less perceived risk when compared to previous years.
Click here to download the full report.
Using data published in year-end reports by 26 European banking groups before April 2024, the latest study finds:
- The net ECL charge in profit or loss and the ECL allowances in the balance sheet show a global decrease of 1.7% between 2022 and 2023.
- An average amortised cost loan coverage ratio decrease of 1.36% at the end of 2023, compared to the end of 2022 when it was 1.40% (and notably in 2019 when it was 1.57%). This is due to a significant drop in coverage ratio for stage three instruments that are not completely offset by the relative increase of stage one and stage two coverage ratios.
- A weight of post-model adjustments/overlays in ECL charge/release and the balance sheet has continued to decrease since the end of 2021 (12% of the loss allowances at the end of 2023 vs. 14% in 2022 and 16% in 2021).
Vincent Guillard, partner, who leads this annual study, said: “There’s been a recurring series of turbulent events in the past few years influencing the financial sector’s stability, including operating profits and losses, expected credit losses (ECL) coverage ratios, and the ventilation of gross credit exposures. Resilience is building and it’s encouraging for economies across Europe as we start to see greater stability emerge. Our latest report provides a benchmarking tool to help banks compare the impact of the macroeconomic climate on their business as they prepare for the next financial years ahead.”
Guillard continues: “Over the past 18 months, the market has had to address inflation and rising interest rates to the fall of three US banks and the takeover of Crédit Suisse by UBS. Despite these uncertainties, a large number of credit risk impairment indicators show an overall reduction in the risk perceived by European banks on their portfolios. We note as well that banks improved their models to progressively include post-model adjustments (PMAs) as the impact of PMAs on ECL charge continued to decrease significantly (18% in 2023 vs. 30% in 2022 and 48% in 2021).
“Forecasts of future growth rates presented by some banks also include optimism compared to the Bank of England’s expectations for eight banks that use United Kingdom growth rates, and overall good consistency with the European Central Bank’s assumptions for nine banks that use eurozone growth rates.”
