The profile of the last two years of bank provisioning looks like a hill – one that is steeper on one side than the other.
The steep side is the billions of dollars of allowances banks took in expectation of a wave of defaults through the Covid-19 crisis. The shallow side is banks unwinding the vast majority of those provisions and releasing them as the credit crisis persistently fails to arrive.
As Euromoney explained in September, a combination of factors brought us to this surprisingly modest hit to bank stability. The biggest were government stimulus to keep companies in good shape and central bank stimulus in the form of dramatically lower rates.
The knock-on effect of this was the interest burden on debt was so low that most clients could ride their way out of trouble, borrowing cheaply where necessary.
Also in the mix are improved standards of risk management and client selection on the part of most banks; IFRS9 rules that required heavy upfront provisioning, even if it turned out not to be necessary; and the fact that the worst corporate suffering was concentrated in a few sectors such as tourism and aviation that were often bailed out by governments well before their problems ever hit the banks.
Still,