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KPMG- European banks and COVID-19 : Impacts on 2020 Q3 results

Ewa Bialkowska

Director, KPMG IFRG Limited (UK)

In our previous blogs, we reported on the COVID-19 pandemic’s impact on the expected credit losses (ECL) disclosed by a selection of large European banks (Q1 reporting to 31 March 2020 and half year to 30 June 2020) and five Canadian banks (half year to 30 April 2020).

Here, we look at what those same European banks have disclosed in their 30 September 2020 (Q3) quarterly reports. Similarly to Q1 reporting, the level of detail released by banks varies considerably. This means that the number of banks included in each of the ratios below differs.
 

ECL charges and profitability

Firstly, for 11 banks we compared the total ECL charge in profit or loss1 and the profit before tax for the nine months to 30 September 2020 to the corresponding period in 2019. The percentage change in the ECL charge and profit before tax for each of the banks is shown below.

The percentage increase in ECL charge varied considerably – from 40% (a Spanish bank) to 800% (a Swiss bank) – although the latter appears to have had a very small year to date (YTD) ECL charge in Q3 2019.

Interestingly, the bank with the largest increase in its ECL charge also reported an increase in its profit before tax for the same period. The two banks with the smallest increases in ECL reported some of the largest declines in their profit before tax – similar to what we observed at the half year and discussed in our last blog.

For all of the banks in our selection, we also calculated the average increases2 in ECL charge for Q1, Q2 and Q3 2020 from the respective quarters in 2019, which showed a significantly decelerating trend, as follows:

 Q1 2020Q2 2020Q3 2020
Average increase in ECL charge vs 2019 comparative quarter600%400%40%


The loss allowance ratio

The chart below shows the loss allowance ratios3 for loans carried at amortised cost of eight of the 11 European banks at 31 December 2019 (YE), 31 March 2020 (Q1), 30 June 2020 (Q2) and 30 September 2020 (Q3).

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