Top 50 Safest Banks In Europe 2020

Following a period of some relief during the warmer months, the widely predicted second wave of the Covid-19 pandemic has emerged in Europe. France, Spain and the UK have seen sharp increases in cases and positivity rates since September while Germany has experienced a slower resurgence. Governments are responding with new regulations aimed at containing the virus, including partial lockdowns and limits on social interaction.

Global Finance determined its 50 Safest Banks in Europe at an exceedingly difficult time for the industry, one requiring them to innovate and to control their risk exposure. With the end of the health crisis and full economic recovery likely some way off, the stresses on the banking sector are unlikely to diminish soon. Many institutions are responding by expanding digital platforms, introducing new online products and creating revenue opportunities to counteract margin compression, improving operational efficiency and rationalizing branch networks. Revenue and profitability remain under pressure, given an expected increase in credit costs related to rising loan delinquencies and nonperforming assets, particularly in such heavily impacted sectors as small and medium-sized enterprises (SMEs), tourism and hospitality, retail, energy and airlines, making effective risk management all the more important.

Recognizing the risk of asset quality erosion, governments and regulators have responded with relief measures for banks, including loan forbearance, deferral of interest and extension of debt repayment terms into 2021. Moreover, central banks have launched new loan guarantee programs designed to protect banks from significant credit losses and promote lending at this critical time. France, Germany, Spain, the UK, Italy, the Netherlands and other countries have committed €2 trillion ($2.4 trillion), fully covering loans to SMEs and guaranteeing some large corporate exposures.

More broadly, to address the economic downturn and facilitate credit flow to retail and corporate borrowers, regulators have enacted policies that afford banks greater flexibility with liquidity, capital buffers and collateral requirements. The European Banking Authority has postponed its annual stress test until January 2021 to provide operational relief to the sector. In March, the European Central Bank launched its initial €750 billion Pandemic Emergency Purchase Programme, boosted to €1.35 trillion in June, that provides liquidity by purchasing private and public sector debt. The European Commission, the European Investment Bank and the European Stability Mechanism have made over €540 billion available to help individuals and businesses, and to provide liquidity support for SMEs and larger companies and funds for health care treatments and vaccines.

In the UK, in addition to rate cuts, the Bank of England has suspended capital buffers, potentially releasing £190 billion (about $246.8 billion) for lending, and is promoting lending to SMEs through its Term Funding Scheme and Bounce Back Loan Scheme.

Shuffling The Deck

As banks look to balance the need to shore up their businesses with the prerequisite to keep their balance sheets right-side up, rating agency actions have shuffled the deck, affecting Global Finance’s Safest Banks rankings. Rating upgrades have generally been the result of improvements in bank resolution strategies, loss-absorbing capacity and improved capital buffers. This benefitted BNG Bank, which joins a select group of institutions with triple-A ratings from each of the three major agencies, the others being KfW, Zuercher Kantonalbank and Landwirtschaftliche Rentenbank.

Other banks that rose in the rankings this year include DNB Bank and Komercni Banka (both up 8 places), BPCE (6), Natixis (5), and ING Bank Slaski, the Polish subsidiary of Netherlands-based ING Groep (7).

Some rating downgrades, notably for Societe Generale and Danske Bank, reflect profitability concerns; while operational problems negatively impacted Swedbank as Swedish regulators discovered serious risk management deficiencies in the institution’s anti-money laundering procedures. Revenue and profitability concerns, combined with a planned corporate restructuring, prompted downgrades of HSBC Holdings by Fitch and Standard & Poor’s &P, and of the HSBC France subsidiary by S&P, knocking it down more than ten places.

New entrants to this year’s top 50 include Swedish Export Credit, Credit Industriel et Commercial, and AXA Banque. Belgium’s Belfius Bank benefited from “fallen angels” and Denmark’s Nykredit Realkredit and Jyske Bank rose with upgrades.