European Bank Provisions Hit $28 Billion, Still Trail U.S. Peers
European Bank Provisions Hit $28 Billion, Still Trail U.S. Peers
(Bloomberg) --
Banks in Europe set aside about $28 billion to cover bad loans in the second quarter, led by British firms including HSBC Holdings Plc and Lloyds Banking Group Plc and consumer lenders such as Banco Santander SA.
About half of Europe’s 20 largest lenders stashed away far more for souring loans in the second quarter than in the first, while the other half provisioned about the same amount or less, reflecting diverging views on the economic effects of the pandemic on their markets.
Yet European banks are still trailing their Wall Street peers, which have set aside far more this year. The gap that reflects both U.S. lenders’ higher profits, and the severity of the outbreak in the world’s largest economy.
Within Europe, lenders in the U.K, where the pandemic peaked later, led provisioning in the second quarter. The country’s six biggest banks have set aside an amount this year that roughly equals the stock market value of Barclays Plc. The move reflects concerns about how British households are going to cope with what the Bank of England has said could be the worst downturn in 300 years.
In the rest of Europe, where businesses started to reopen, several banks said borrowers that had drawn down credit lines during the early days of the pandemic have since repaid or refinanced them. Lenders including ING Groep NV and Deutsche Bank AG have signaled that provisions have probably peaked.
In the U.S., the country with the worst outbreak, eight of the biggest lenders stashed away a combined $41.5 billion for future bad loans last quarter. That’s up from about $32 billion in the first three months of the year.
U.S. banks generally are more profitable and so can afford to take a bigger hit that their peers in Europe, which have suffered through years of record low and even negative interest rates. To address the problem, some European regulators have granted banks more flexibility in provisioning, while asking them to preserve capital by pausing shareholder payouts.
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