Financial reporting of European banks in the context of Covid-19: June 2021 update

We have analysed the 2021 interim reports of 26 banks in 11 European countries to better understand the impact of Covid-19 on their financial performance in H1 2021. This study is the third in its series and follows on our second edition of the report released in May 2021.

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Key findings

• In the first half of 2021, all banks in the sample present a significant decrease in their ECL charge compared to the same period in 2020.
• Most of the banks that experienced the highest increase in ECL charges last year are now among those with a net ECL profit in the first half of 2021.
• 100% out of 18 banks that disclosed their amounts both in H1 2021 and YE 2020 have a cumulated overlay that is an ECL charge.
• The change in overlays represents on average 54% in ECL profit or loss before overlays in absolute value.

Read the report below to find out more.

In the following, our Senior Manager Heike Hartenberger provides a contextualisation of the report for the German market:

"The Covid-19 pandemic – a baptism of fire for the specific requirements of IFRS 9 on credit risk provisioning. The uncertainty associated with the pandemic and the data required to determine credit risk provisions presents a unique challenge. Overlays and post-model adjustments have become important measures for determining risk provisions during the pandemic. Despite the pandemic’s global nature, there were differences in how credit risk provisions were developed in the various countries, regions, and economic sectors. In September, Joachim Wuermeling noted that for German banks¹, the value adjustments and credit losses due to the pandemic are currently significantly lower than initially expected and that the risk provisions established by the banks in FY 2020 resulted in a comparatively lower risk provision in the first half of this year. This observation was confirmed in our benchmark study. Financial reporting for the first half of 2021 showed that overlays and post-model adjustments will also significantly determine the risk provision costs for FY 2021. This is due, in particular, to the delay in credit losses resulting from the Covid-19 relief measures and the continuing uncertainty regarding macroeconomic factors."

^{¹at the online German Bundesbank symposium "Banking Supervision in Dialogue"}