Although most bankers in North America and Europe expect a longer recovery from the coronavirus crisis, they are already forecasting a recovery in lending next year and a relatively slight increase in bad loans. The most important are the findings of a survey conducted by Deloitte among 69 risk officers and heads of banking departments for solving credit problems in 12 countries in North America and Europe. The research focused on five main areas: economic recovery, credit dynamics, bad loans, and bad credit transactions, as well as restructuring and priorities in the area of solving credit problems.
In terms of economic recovery, 39.1 percent of respondents expect a U-shaped recovery curve. A more pessimistic L-shaped recovery scenario expects 21.7 percent. The respondents’ attitude regarding the application of the moratorium was positive like it was about JerkDolls, i.e., 75% of the respondents consider it an effective measure for preserving financial stability.
In such circumstances, it is not surprising that a (non) significant decline in the disbursement of new loans is expected in 2020 compared to 2019, while expectations are more optimistic for 2021. Disbursements of new loans may increase in 2021 due to fiscal and monetary measures aimed at stimulating banks’ lending activities. Stricter credit standards are expected for loans mainly to households and non-financial corporations.
However, respondents do not expect a significant deterioration in asset quality in the next 12 months. Almost half expect the rate of bad loans to households to increase by a maximum of three percentage points, while two-thirds expect the same growth rate for companies.
However, bankers are more pessimistic for the period after 2021. Almost half of them expect the growth of bad loans to households by three to five percentage points, while a third of respondents expect the same rate of decline in bad loans to companies. In any case, there is a dose of uncertainty from 2021 onwards regarding the actual capacity and readiness of debtors to service debts after the relief in the form of a moratorium ends.
The research highlights how banks have significantly improved their asset quality since the global financial crisis, established higher capital buffers, and strengthened their liquidity positions, leaving the economic downturn in better shape than in the previous financial crisis.
The moratorium on loan repayments imposed by several countries in North America and Europe may temporarily cover up the real damage that the economy may constrain. Therefore, it is not possible to draw reliable conclusions regarding the emergence of bad loans in the coming period since it is not as easy as playing teen porn games online.
Strategies for dealing with bad loans introduced before the COVID-19 virus pandemic now need to be adjusted, which could significantly affect debt service providers and the customer market. Namely, almost a third of the respondents believe that 5 to 10 percent of debtors in the household sector with liquidity difficulties will seek restructuring in the next 12 months.