Banks across Europe are being pushed or forced to grant loan-repayment holidays, resulting in growing calls in the sector for greater slack from regulators, particularly on the reporting of bad debts.
Investor worries about lower pay-outs – even emergency capital raisings – are weighing heavily on banks’ equity and subordinated debt values.
Global central banks have flagged that banks should eat into capital and liquidity buffers, which are generally much higher than they were before the 2008 financial crisis. The question, though, is whether it’s enough: especially as delayed payments by households and businesses should command higher provisions.
“We are facing a war; it’s probably much worse than a war,” said Giovanni Sabatini, general manager of the Italian Banking Association (ABI) after the country announced a nationwide quarantine on March 10.
“You cannot manage the current situation by saying ‘we have a set of rules that work during a normal economic cycle, so let’s live with it’.”
After the global financial crisis, regulators have demonized the word forbearance, as there was abuse of it.
