At the start of February, Europe’s largest banks began to report their full-year 2020 results. With the half-way point of the first quarter of 2021 already looming, investors wanted to hear more about the outlook, particularly for credit costs.
Here is the good news: the executive summary from bank CEOs is that the worst is past. And the tantalizing possibility is that write-backs from conservative provisions taken in the first half of 2020 could nudge up reported profits in 2021.
José Antonio Alvarez, chief executive of Santander, says: “We expect this year the cost of risk to go down from the 128 basis points we had [in 2020] and start the convergence to 1%.”
That would be a return to pre-pandemic levels.
At BNP Paribas, cost of risk in 2020 rose to €5.7 billion, an increase of €2.5 billion from 2019. Compared with Santander, that €5.7 billion is a more modest 66bp of the loan book, with 16bp of that counting against still performing stage 1 or 2 loans.
The NPL peak may have been flattened and the worst may have passed.
