European Banks Report Significantly Lower Cost of Risk in H1 2021 Supported by Loan Loss Releases

DBRS Morningstar has released a commentary on the cost of risk (CoR) of banks in Europe, including banks in France, Germany, Italy, the Netherlands, Spain, Sweden, Norway, Portugal, Denmark, Finland, Ireland and the United Kingdom (UK).

Key highlights from DBRS Morningstar’s commentary include:

• European Banks reported significantly lower levels of cost of risk Year-on-Year in H1 2021, supported by generally lower level of provisions, and significant provisioning releases at some banks.
• In Q2 2021, European banks followed broadly similar provisioning trends as in Q1 2021.
• Average CoR over the pandemic period to date (H1 2020 -H1 2021) is still considerably higher than FY 2019 levels.

“Almost 18 months since the beginning of the Coronavirus pandemic, European banks reported lower levels of Cost of Risk (CoR) for the fourth consecutive quarter in Q2 2021. We note European banks generally followed a similar provisioning approach in Q2 as in Q1, and more banks made substantial provisioning releases in Q2. Government and regulatory support measures are likely to wind down from Q3 2021. As a result, we expect slightly higher levels of CoR and NPLs at European Banks starting from Q4 2021, with this becoming more noticeable in 2022” said Maria Rivas, Senior Vice President from the DBRS Morningstar Financial Institutions team