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It will be a difficult year, 2021, for European banks (Eurozone, Great Britain, Nordic area and Central and Eastern Europe), which will have to deal with an operating environment characterised by slow economic recovery, growing problems on loans and weaker profitability prospects.
This is what Moody’s experts explain in a report published yesterday, in which they confirmed a negative outlook on the sector.
“Our decision,” explains analyst Carola Schuler, “reflects our expectations that banks’ credit fundamentals will weaken as a result of the coronavirus pandemic. During these uncertain times, a strong capital and liquidity base will be crucial strengths for banks and a supporting factor will come from accommodative monetary policies”.
Going into Eurozone details, “Loan performance will weaken, while weak profitability due to chronic inefficiencies will be exacerbated by rising defaults and declining net interest margins,” explains Moody’s, which points the way to lower costs and digital investments as a partial solution to counter the pressure on institutions.
According to Moody’s, internal consolidation will continue as low-level corporate valuations generate negative goodwill that can be used to offset restructuring costs.
However, cross-border consolidation should remain limited unless regulations and consumer protection are better harmonised.
For the UK, the impact of Brexit will be secondary to the expected pandemic impacts, according to the rating agency:
“The UK’s economic contraction will be deeper than the euro area average and recovery to pre-crisis levels will take longer, compromising business opportunities.
As for institutions in the Nordic countries, banks in these countries will continue to outperform their competitors in the Eurozone, despite having seen a deterioration in loan quality and high pressure on profitability due to the pandemic effects