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 historically 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 outstanding elements of the annual transparency exercise published this Friday by the European Banking Agency (EBA) which, however, launches several messages of prudence in the direction of 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 that represent more than 80% of the sector), the level of solvency in the first quarter of 2020, when the shock arrived of the coronavirus, fell five tenths to 14.3%, but since then it already rose to 15.5% at the end of that year.
The maximum quality capital ratio (CET1) and anticipating future regulatory requirements (“fully loaded”) remained at 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 stood at 12.7%, the second worst on the continent, just ahead of Greece, with 10.8%. Above Spain, but without 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 one with the highest solvency in Spain, with a capital of the highest quality of 17.7%, followed by Kutxabank, with 17% and BBVA, with 14.2%. Next are the Cooperative Bank (with 12.9%), Ibercaja Banco (12.7%), CaixaBank and Abanca (both 12.5%) and Bankinter (12.2%). Below 12% are Sabadell, with 11.9%, and Banco Santander, with 11.7%.
With regard to non-performing loans, Spain also fares worse than the rest of the Old Continent, as the default rate stood at 3.1% in mid-2021, compared to the European average of 2.3%.
The EBA noted that extremely low and even negative interest rates continue to weigh on margins
The EBA indicated that although globally they have decreased, non-performing loans have increased in the economic sectors most affected by the pandemic. It also shows its concern about credits guaranteed by the State and which are subject to a reimbursement moratorium, since an increasing number of them are being classified as delinquent or under special surveillance.
As regards 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% a 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) to jump spectacularly to 7.6% at the end in the first quarter and at 7.4% as of June 30, levels that had not been 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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