Despite strong earnings growth in the first quarter of 2021, European banks are being urged to exercise caution by the European Central Bank, which believes it is too early to be fully optimistic.
Results ahead of expectations
The first quarter of 2021 was a successful one for the major European banks, which saw their earnings rise sharply, with profits exceeding specialists' forecasts by up to 2 to 3 times.
This growth is mainly due to the healthy state of trading activities, but also to the downward trend in financial provisions by banking institutions, which have taken less precautions against the risk of payment default, the danger being lower than at the same time last year.
The European Central Bank's call for caution
However, the European Central Bank is warning banks to proceed with the utmost caution. While the forecasts are rather reassuring, public support measures for the economy are still in place.
Their gradual withdrawal, as the epidemic loses ground, could considerably increase the number of business failures, which is still at a very low level. At the same time, companies are increasingly indebted.
For their part, European banks feel they are sufficiently vigilant, and French banks had sufficient financial provisions to cover the risk of non-payment even before the health crisis began.
Although European banks have less cash to spare than they did at the same time last year, they have nevertheless refrained from writing back provisions, unlike their American counterparts. JP Morgan, for example, did not hesitate to reduce its provisions for unpaid debts by $5.2 billion.