During the health crisis, banks lent out more and customer deposits increased considerably. As a result, banks' balance sheets exploded, reaching levels not seen since the 2008 financial crisis.
Increase in bank loans and deposits
While all eurozone banks have seen their portfolios return to unprecedented levels equivalent to those prior to the 2008 financial crisis, the phenomenon has been particularly significant in France.
Between mid-2020 and mid-2021, the balance sheet total of French banks rose by 13. 4%, from 7,478 billion euros to 8,485 billion euros. In the eurozone, the increase was more restrained, averaging +3.1%.
The rise in bank balance sheets is linked to two phenomena observed since the health crisis began 18 months ago:
- on the one hand, the sharp rise in credit granted by banking institutions ;
- on the other, the explosion in customer deposits.
According to figures from the European Central Bank (ECB), this double movement brought total bank balance sheets to 28,000 billion euros at the end of June, the same level as during the 2008 financial crisis. Banking portfolios had reached their lowest level in 2013, with a total of around 23,000 billion euros.
Eurozone bank balance sheets up sharply
The injection of liquidity into the economy and the various forms of financing provided by governments and central banks have amplified the phenomenon. Bank lending to companies in the eurozone increased by 250 billion euros at the very start of the health crisis, between March and May 2020. This is the biggest increase ever seen in just 3 months.
This increase in bank lending, combined with a rise in deposits and a market rebound that boosted the value of the securities held by banks in their portfolios, contributed to the explosion in balance sheets.
However, there are disparities between the various eurozone countries, with a sharp increase in France and smaller increases in Germany and Italy. In Germany, total bank balance sheets rose by 1.4% between mid-2020 and mid-2021, and by 7.1% in Italy over the same period.
European supervisors must now ensure that this rise in bank balance sheets is not correlated with an increase in bad debts. While this is not currently the case, vigilance is still called for: the full impact of the health crisis will only be visible and measurable in several years' time.
At present, the signals are not worrying: solvency levels in the banking sector have not deteriorated despite the increase in balance sheets, and dividend payments are once again authorized by the European Central Bank.