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The EU banking industry can withstand the coronavirus crisis and boost lending by as much as €1.3 trillion, the region’s top regulator estimated Monday.
Lenders on average have enough financial firepower to bear the losses anticipated from the historic economic shutdown, the European Banking Authority said in a first report on the potential impact of the pandemic.
After regulators relaxed some rules as the outbreak spread, Europe’s banks have extra capital — cushions above their minimum requirements — amounting to 5 percent of assets as measured using risk-weighting formulas. That’s more than half of their total capital, 9 percent on average, during the global financial crisis in 2009.
The COVID-19 outbreak, which has caused the sharpest economic drop in living memory, stands to hit banks with losses amounting to 3.8 percent of risk-weighted assets, the EBA said. The Paris agency emphasized that its findings are a preliminary estimate, too rough to apply to any individual bank or country.
The remaining available capital of €41 billion could fuel fresh lending of €0.6 trillion to €1.3 trillion, according to the EBA. That range equates to between 4 percent and 9 percent of last year’s gross domestic product in the EU27 countries.
That’s if banks deploy that financial capacity to issue the credit, rather than hoarding it to keep their capital ratios up.
“We are fine for banks to reduce their capital levels,” said Mario Quagliariello, director of economic analysis and statistics at the EBA....