European banks risk losing 160 billion euros due to pandemic without massive overhaul

European banks are under pressure to review their operations in the aftermath of the Covid-19 crisis, or risk losing up to 160 billion euros in revenue.

That’s according to a report by consultants Oliver Wyman, which says that while European banks have weathered the pandemic better than expected, they need to change their business models to capitalize on potential longer-term opportunities to bolster their revenues.

Unwinding emergency loans, helping clients transition to a low-carbon economy, adapting to digital trends and building infrastructure for digital currencies are all key challenges for banks, according to the report. The 160 billion euros represent around 25% of the total revenues of banks in the region, he said.

“European banks have a unique opportunity to support the recovery from the pandemic and help solve some of the big problems facing the European economy,” said Matthew Austen, managing partner of European financial services at Oliver Wyman. “With up to a quarter of banking revenues at stake as we emerge from the pandemic, the banking system must engage with policy makers, anchor its central position in the economy and build customer confidence. Otherwise, European banks assume the consequences. “

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Last year, Oliver Wyman used the same report to predict the worst-case scenario in which European banks would face credit losses of up to € 400 billion as a result of the fallout from the global Covid crisis and 30 billion euros in revenue. In fact, European banks racked up € 110 billion in credit losses in 2020, more than double that of 2019, according to the report.

European banks have been slower to recover from the 2008 financial crisis than their rivals on Wall Street, facing an overly competitive and fragmented market and continued pressure to merge. The 2010 sovereign crisis in the region added to the woes of European lenders, and there is still pressure for bank consolidation in the region.

But the Covid pandemic has presented a new set of challenges that European banks must adapt to as a result of the crisis, predicts Oliver Wyman. In particular, learning how to finance the transition to a low-carbon economy presents a revenue opportunity of 50 billion euros, he said.

“Growing interest from analysts and investors means it will become increasingly clear who is making real progress (engaging with clients, reshaping the balance sheet) and who is stuck in the complexity of measuring and not. has initiatives only on paper, ”he said.

To contact the author of this story with comments or news, email Paul Clarke