Study: US, EU Banks Could Take $880B COVID-Related Loan Loss Hit

U.S. bank profits are at double the risk for loan losses than their European counterparts, according to the Financial Times on Tuesday (July 28).

According to consultants with Accenture, European banks are already preparing to follow American ones in massive second-quarter loan loss reporting related to the pandemic. The loan losses between U.S. and E.U.  banks could total around $880 billion across about 100 banks from 2020 to 2022, the data showed.

For U.S. banks, the losses are predicted to be at $427 billion over those three years, or about 10.2 percent of their average 2020 loan books, according to Accenture. The European banks will likely take around $455 billion in loan loss charges, which will be about 4.6 percent of their loan books, according to the Financial Times.

Banks have steeled themselves for the possible losses, PYMNTS wrote, setting aside over $30 billion to cover them, a much higher level than just over a year ago. The massive spike is due to the uncertainty surrounding the pandemic.

U.S. banks are more likely to be conservative in their estimates of future losses, which could lead to higher loan loss charges in the long run. And new accounting rules force banks to estimate the lifetime losses of every loan, as opposed to European bank rules only requiring that to be done for loans that deteriorate beyond a certain level.

That disparity has become evident already as JPMorgan Chase, Wells Fargo, Bank of America and Citigroup in the U.S. took a combined $33 billion in loan loss charges in the second quarter. That number is more than the top 30 U.K., Swiss and E.U. lenders, analysts predict, according to publication.

Alan McIntyre, Accenture's global head of banking, said the disparity is because of the reliance on credit scores, which doesn't necessarily offer a clear picture on which banks might be in distress. That said, the news could be helpful for Americans as the loan losses will likely take up less bank capital, due to loans making up less of the total balance sheets as opposed to European counterparts.



The How We Shop Report, a PYMNTS collaboration with PayPal, aims to understand how consumers of all ages and incomes are shifting to shopping and paying online in the midst of the COVID-19 pandemic. Our research builds on a series of studies conducted since March, surveying more than 16,000 consumers on how their shopping habits and payments preferences are changing as the crisis continues. This report focuses on our latest survey of 2,163 respondents and examines how their increased appetite for online commerce and digital touchless methods, such as QR codes, contactless cards and digital wallets, is poised to shape the post-pandemic economy.