DBRS Morningstar: European Bank Moratoria: Short-Term Relief Only

DBRS Morningstar has released a commentary about moratoria extended by a sample of 45 European banks as well as the impact of payment holidays on the Structured Finance transactions that DBRS Morningstar rates.

Key Highlights include:

• European banks in our sample had granted around EUR 851 billion of loan payment breaks or moratoria as of end-June 2020, which represents around 7% of aggregate gross loans

• The differences in the amount of moratoria extended by European banks at end-June 2020 could be influenced by the various support measures offered by governments to mitigate the negative impact of the pandemic on banks' balance sheets

• There has been a wide dispersion in moratoria loans by sector among European banks in our sample. On aggregate, 53% of loans under moratoria were granted to households, and 45% to Non-Financial Corporations

• UK, Italy and Portugal show the highest number of reported payment moratoriums to date among 240 DBRS Morningstar rated Structured Finance transactions

“There are wide differences across European banks in the usage of moratoria. Banks domiciled in Portugal have the highest proportion of granted moratoria per gross loan among European banks in the sample, representing around 22% of total gross loans, followed by banks domiciled in Ireland (13%), the UK (10%) and Italy and Spain (9%). Banks in the remaining countries reported loans under moratoria around or below 5% of gross loans. Most of the outstanding moratoria at end-June 2020 are expected to expire during 2020. As a result, we view these measures as only providing short-term relief for many borrowers and we expect an increase in non-performing loans in the banks' balance sheets from Q4 2020“ said Maria Rivas, Senior Vice President.