ECB Intensifies Scrutiny of Top Banks on Potential Loan Default Risks

The European Central Bank will increase scrutiny of credit risk preparedness by banks on potential loan defaults brought by the pandemic, according to Bloomberg. ECB officials and national watchdogs are pushing lenders to give additional information on their corporate lending in 2020.

• ECB Supervisory Board Chairman Andrea Enria has severely warned of an increase in banks’ non-performing loans once government relief programs run out.
• ECB is concerned about the different methods banks are using to account for credit risk and provisions
• Investors have increasingly been concerned about the disparity of loan loss provisions across ECB banks.
• Ten of Europe’s biggest lenders set aside $15 billion for doubtful credit in the fourth quarter.
• The action by EB aims to ensure banks’ capital cushions are strong enough to withstand a severe economic downturn.
• ECB is considering tougher capital requirements for banks that do not adequately manage their leveraged financial risks in addition to constraining dividends and bonuses.

European top bank stocks are currently gaining. BNP is up 2.36%, DBK is up 2.39%, GLE is up 2.66%