NEW REPORT

Managing uncertainty, ensuring resilience – EY EBF CRO survey

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Brussels, 27 July 2022 — The COVID-19 pandemic was a health crisis that impacted millions of individuals. It quickly led to global economic disruption, which saw SMEs and large corporates suffer challenges and losses they had never previously faced.

The start of COVID-19 also marked the beginning of a period of extreme uncertainty for chief risk officers (CROs), with little prospect of a return to the norm in the short term. Banks faced political and public pressure to support individuals, small businesses and large corporates, all at a time when they were being squeezed on capital. For bank CROs, the uncertainty it created was on a scale few had ever contemplated.

There were several key periods for CROs within this timeline:

1. The immediate response to COVID-19 and widescale economic shutdowns

As COVID-19 hit, CROs had to respond to economic-wide shutdowns and an unprecedented pause on activity across sectors. Banks then had to use judgments on the extent of provisions needed using overlays, as models were unable to assess the level of losses in such an atypical scenario.

2. Easing of concerns as stimulus and furlough mitigated worst-case scenarios

The industry responded well through its own forbearance, as well as working with the authorities to ensure stimulus helped keep economies afloat. As defaults failed to reach the levels predicted, bank CROs started to release provisions while focusing attention on sectors most exposed to lockdowns, such as tourism, construction and leisure.

3. Start of the war in Ukraine

CROs had to react to any direct exposure to Russia, as well as consider the impact of sanctions and the impact on sectors hit by disruptions (e.g., energy-intensive sectors or sectors related to food security).

4. Managing the fallout of the war, COVID-19 defaults and higher inflation

Banks are now navigating a complex array of drivers as they look at their loan exposure. As well as inflation, the threat of recession and the impact of high energy costs, they are also having to prepare for defaults finally occurring as a result of COVID-19, as businesses potentially may struggle without government support.

As part of the knowledge partnership between EY and the EBF, we wanted to shed more light on how banks navigated each of these stages. We surveyed 63 banks from 22 European countries as the pandemic eased and ahead of the start of the Ukraine war. We also spoke to banks to gauge how the war has changed the pressures they face and their views on what the future holds.

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For more information:

Ruta Barthet, Senior Media and Communications Offcer, r.barthet@ebf.eu

Gonzalo Gasos, Senior Director of Prudential Policy & Supervision, g.gasos@ebf.eu

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About the EBF:

The European Banking Federation is the voice of the European banking sector, bringing together 32 national banking associations in Europe that together represent a significant majority of all banking assets in Europe, with 3,500 banks – large and small, wholesale and retail, local and international –while employing approximately two million people. EBF members represent banks that make available loans to the European economy in excess of €20 trillion and that reliably handle more than 400 million payment transactions per day. Launched in 1960, the EBF is committed to a single market for financial services in the European Union and to supporting policies that foster economic growth.