Financial Reporting of European Banks reveals how COVID-19 has affected the expected credit loss


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  • The report is based on Mazars’ analysis of information published in the 2022 interim reports of 26 banks across 11 European countries.
  • The main findings reveal a decrease in the number of defaults, thanks to the support offered by different governments through the pandemic.
  • War in Ukraine raises concerns over geopolitical instability and subsequent energy crisis that are creating an increasingly challenging economic environment.
  • According to the publicly available data in Romania, the ECL allowance balance increased in H1 2022 compared with the prior year.
  • Whereas data for H1 2022 is rather limited, evidence shows that the Romanian banks continued to steadily increase the ECL loans coverage ratio up to a median of 5.5%.


Mazars, the international audit, tax and advisory firm has released the fifth edition of its Financial Reporting of European Banks report, which focuses on European banks’ expected credit loss (ECL) levels in H1 2022. The report is based on an analysis of information published in the 2022 interim reports of 26 banks across 11 European countries including the UK, France, Germany, Italy, and Spain.

The report reveals that over H1 2022, there has been a decrease in the number of defaults from the European banks analysed, mainly driven by support from respective governments through the pandemic. The analysis further shows that new concerns have arisen as the war in Ukraine continues in generating geopolitical upheaval and an energy crisis, increasing pressures on banks amidst economic conditions that are becoming increasingly challenging. This looks set to impact global markets in the long run.

The report is designed to serve as a practical benchmarking tool, helping credit institutions compare the impact of the macroeconomic climate on their business with their peers.

H1 2022 vs. Year End 2021

The main findings in H1 2022, compared with YE 2021:

  • An average cost loan coverage ratio that decreased compared with YE 2021 (1.42% in H1 2022 vs. 1.54% in YE 2021), due to a lower coverage ratio for stage 3 and stage 2 instruments;
  • A global relative decrease in the weight of stage 3 exposures and loss allowances since YE 2021;
  • Visible geographical trends in changes of ECL allowances and post-model adjustments, macroeconomic scenarios weightings, and forward-looking information compared with YE 2021;
  • Limited direct impacts of the war in Ukraine, but economic uncertainties bearing on post-model adjustments in H1 2022.

Exploring allowances, adjustments and overlays

The report covers a number of important topics such as:

  • ECL charge impact of H1 2022 on the profit or loss and ECL allowances;
  • ECL allowances: changes in coverage ratios and allocation between stages;
  • Post-model adjustments and overlays;
  • Assessment of some of the forward-looking information contained in the banks’ interim reports, and investigation into how banks are preparing for the emerging financial effects of the ongoing war in Ukraine.

Impacts of the ongoing war in Ukraine on H1 2022 ECL

  • The banks analysed in the report disclosed different quantitative information about exposures, such as on and off-balance sheet or % of the total loan book, or impacts resulting from operations related to subsidiaries in Russia or Ukraine (e.g. loss of control or disposal of the subsidiary).
  • Despite a different basis of comparison, no bank disclosed significant direct impacts stemming from the war in Ukraine.

The impacts of the war in Ukraine are reflected in 3 main different ways in terms of provisions for ECL:

  1. Transfers of Russian and Ukrainian counterparties in Stage 2 or Stage 3;
  2. Update of macroeconomic scenarios;
  3. Net ECL charge through specific overlays or post-model adjustments.

Romania’s perspective on how the expected credit losses (ECL) of the local banks were affected by the macroeconomic difficulties and the ongoing global crises

The global report sheds light on the impact of persistent macroeconomic uncertainties on banks’ performance. Based on a sample comprising the largest 10 Romanian banks (as per their consolidated total assets amount at Dec-2021), we have analysed the evolution of the ECL allowance[1] (expected credit loss provisions balance), ECL coverage ratio (expected credit loss coverage ratio) and its allocation between stages[2] for loans and advances granted to customers, in the YE 2019 – H1 2022 period[3]. Our conclusions should be seen as indicating to some specific trends, we hope this will help banks navigate the current economic and regulatory challenges.”, mentioned Răzvan Butucaru, Partner, Financial Services & Advisory Leader, Mazars Romania.

Overall, when we analyse the expected credit loss coverage ratio, in the wake of the pandemic shock, we note an increase of the median, from YE 2019 (4.4%) to YE 2020 (5%) of 0.6 b.p, the ratio levelling out at around 5% at YE 2020 and YE 2021 for the largest 10 Romanian banks. Whereas data for H1 2022 is rather limited (only four banks of our selection provided such interim data for the first half of 2022), evidence shows that the banks continued to steadily increase the ECL loans coverage ratio up to a median of 5.5%.

Concerning the allocation of gross loans and advances granted to customers per Stages (classification of loans based on credit risk with Stage 1 low credit risk and Stage 3 significant credit risk), our analysis shows a sustained increase by approximately 6 b.p. of the weight of Stage 2 (increased credit risk) exposures from YE 2019 (12%) to YE 2020 (18%) and YE 2021 (17.4%). This increase is offset by a decrease of Stage 1 exposures and a constant level of Stage 3 (significant credit risk) loans and advances granted to customers.

In respect of expected credit loss provisions balance, as expected given the evolution of the exposures, Stage 2 ECL soars by approximately 10 b.p. reaching in YE 2020 and YE 2021, 28% and 29%, respectively. Stage 1 ECL shows a slight increase of approximately 2 b.p. over the analysed period whereas Stage 3 ECL decreases by approximately 9 b.p. from YE 2019 (62%) to YE 2021 (53%).

In the light of the 2022 unparalleled instability environment, inflationary pressures, and the war in Ukraine, it will be, without doubt, interesting to see the evolution of the credit risk quantification by banks.”, mentioned Ovidiu Otto Strasszer, Senior Manager, Financial Advisory, IFRS desk, Mazars Romania.



[1] ECL allowance also includes POCI (Purchased or Originated Credit Impaired) lines.

[2] Stage 1: Low Credit Risk; Stage 2: Increased Credit Risk; Stage 3: Significant Credit Risk.

[3] H1 2022 consolidated information related to ECL allowance was available only for 4 banks (including top 3 largest banks) out of the top 10 selected.

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