The great paradox observed in the European banking systems, and especially in Spain, has been the good behavior shown by delinquency in 2020, which remains contained at the beginning of this year. That, in a context of a drop of 11% in GDP, bank delinquencies even fell slightly, is something that breaks all the traditional statistical models that relate economic activity and delinquency.
The reasons that explain this paradox are found in the measures taken at the dawn of the crisis, both in support of debtors – moratoriums and guarantees – and in a temporary relief in accounting and regulatory treatment by credit institutions, which This did not prevent them from carrying out early efforts to recognize future impairments, causing a significant drop in profitability in European banks, and especially in Spain, which was the one that made the greatest efforts to clean up their balance sheets.
In this sense, the data published this week by the European Banking Authority (EBA) corresponding to the first quarter of 2021, show some interesting guidelines for what the evolution of banking may be in the current context. As for non-performing loans, the EBA data reveal a still very contained evolution, but pointing to a slight increase in the entities with the greatest exposure to the sectors most affected by the pandemic. Provisions registered a notable decrease compared to the extraordinary effort of the first quarter of 2020, when greater deterioration was recognized in a context of absolute uncertainty about the intensity and duration of the pandemic.
As a result of this decrease in write-offs, the profitability of banks in the first quarter improved substantially throughout Europe, and especially in the Spanish case, which incorporates improvements in its efficiency, as well as the accounting effect derived from the integration of Bankia at Caixabank.
In this framework of inflection with respect to 2020 (the default is beginning to rise, although in a very moderate way, while entities reduce their extraordinary provisions) it is evident that the income statements for the first quarter cannot be taken as representative of what is going on to be a cruising speed in the next two or three years, a period that we consider reasonable for a complete digestion of the effects of the pandemic.
That is why, beyond the accounts for a quarter, an approximation exercise with “long lights” becomes relevant, such as the stress test being carried out by the EBA and the results of which will be known at the end of July; or the one that the US Federal Reserve has just completed, and from which a potential deterioration scenario is deduced less adverse than could be anticipated a year ago.
Angel Berges Y Jesus Morales They are professors at AFI-School of Finance.