Ratings agency Moody’s has downgraded the outlook for six of Europe’s biggest banking systems to “negative” as coronavirus threatens lenders’ profitability and asset quality.
Moody’s said the banking systems of France, Italy, Spain, Denmark, the Netherlands and Belgium face a very difficult year and can therefore no longer keep their “stable” rating.
The ratings agency said it “projects cumulative contraction over the first and second quarters of 2020”. It added that it thinks “the output loss in the second quarter is unlikely to be recovered”.
Europe is now the epicentre of the coronavirus outbreak, which has killed more than 21,200 people around the world and infected more than 470,000.
Italy and Spain have been hit particularly hard and face deep recessions that could be worse than those seen in the financial crisis.
“Within this environment, banks’ problem loans will increase, while higher loan loss provisions will reduce banks’ profitability, which is already low compared to global peers.”
Eurozone banks were already weak, having struggled to recover from the Eurozone crisis of the early to mid-2010s.
Moody’s said that in the six countries whose outlook it downgraded, “these banking systems will deteriorate significantly as a result of coronavirus-related disruption”.
“The pandemic will depress business activity and increase banks’ asset risk, which will require additional loan loss provisions. As a result, profitability will decline.”
Moody’s maintained its “negative” outlook for the banking systems of the UK and Germany.
“In both countries, the coronavirus outbreak will exacerbate pressures that already weigh on the banking industry’s prospects,” Moody’s said.
“In the UK, macroeconomic conditions are deteriorating in part because of Brexit-related uncertainties.”