Saturday 12 December 2020 11:30 am

EU banks losing appetite for exposure to Brexit Britain

Banks in the European Union may be losing their appetite for exposure to Britain, the EU’s banking watchdog said yesterday.

There are concerns in the bloc that a no-deal Brexit, which is looking increasingly likely, could disrupt financial markets. 

Britain will stop having full access to the EU after 31 December, and many banks in London have opened hubs in the bloc to avoid being cut off from EU clients. 

The European Banking Authority (EBA) said the EU-based hubs should ensure that adequate management capabilities are in place in the EU, and that leaders should ensure their customers’ exposure to Britain have been transferred to the bloc.

The watchdog was publishing a risk assessment of the European banking system, examining 129 EU banks, and a further six from Britain, setting out 7,600 data points per lender, including details on Covid-19-related loans.

Banks are generally resilient, holding €318bn in capital above overall requirements, with a 15 per cent average core solvency ratio to risk-weighted assets in June, up 60 basis points year-on-year.

But Stage 2 loans, where the risk of default has increased significantly, rose 23 per cent to €1.2trn in June compared with the same month in 2019 as the impact of Covid-19 on businesses and households was felt.

“It still needs to be seen how the phasing out of Covid-19 related measures … will affect asset quality, but it is very likely it will deteriorate further,” EBA said.

Government-backed guarantees on loans and repayment holidays on mortgages were temporary, and banks should engage as soon as possible with struggling borrowers, EBA said.

The watchdog said the hit from rising provisioning for loans has yet to affect capital ratios at a time when rising impairment costs have further depressed low profitability.

“Prudent capital distribution policies are still required,” the EBA added.