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Research Announcement:

Moody's - Moody’s changes outlook on six European banking systems to negative

26 March 2020

Frankfurt am Main, March 26, 2020 --

On 26 March 2020, Moody's reviewed the outlooks on the 10 largest European banking systems in light of the coronavirus pandemic and changed the outlook for six to negative from stable. These are France, Italy, Spain, Denmark, the Netherlands and Belgium. The ratings agency maintained its negative outlooks for the banking systems in Germany and the United Kingdom (UK), and kept stable outlooks on the Swedish and Swiss systems.

The changes reflect Moody's expectation that the spread of the coronavirus in Europe, which has resulted in widespread business closures and restrictions on social interactions, will hit economic activity this year. Moody's projects cumulative contraction over the first and second quarters of 2020. Although supportive fiscal and monetary policy measures will likely aid recoveries with above-trend growth in the subsequent quarters and in 2021, the output loss in the second quarter is unlikely to be recovered. Within this environment, banks' problem loans will increase, while higher loan loss provisions will reduce banks' profitability, which is already low compared to global peers.

Although governments have put in place far-reaching support measures designed to shore up the financial position of businesses and soften the negative impact on employment and on households, the rating agency does not consider that these will be sufficient to fully offset the adverse impact of the coronavirus-induced shutdown. Moody's expects the hotel and restaurant, airline, automotive, and retail sectors to be the most severely hit, and that small and mid-sized enterprises (SMEs) will be particularly vulnerable.

In most banking systems, liquidity is strong and capital buffers are substantial, providing a solid base to absorb unexpected losses.

Outlooks for the Belgian, Danish, Dutch, French, Italian and Spanish banking systems are changed to negative from stable. Moody's expects that the operating environment for these banking systems will deteriorate significantly as a result of coronavirus-related disruption. The economic and market upheaval caused by the pandemic will depress business activity and increase banks' asset risk, which will require additional loan loss provisions. As a result, profitability will decline.

The outlook on the German and UK banking systems remains negative. In both countries, the coronavirus outbreak will exacerbate pressures that already weigh on the banking industry's prospects. In Germany, these include declining net interest income and the adverse impact of international trade tensions on key export-oriented manufacturers. In the UK, macroeconomic conditions are deteriorating in part because of Brexit-related uncertainties. Moody's had already changed its outlooks on the German and UK banking systems to negative from stable in November and December 2019 respectively.

Moody's has kept stable outlooks on the Swedish and Swiss banking systems. The rating agency expects the decline in Swedish and Swiss banks' profitability as well as the increase in problem loans from a very low base to remain more contained. This will allow banks in both systems to maintain their strong capital ratios, which continue to benefit from continued capital generation.

To see the complete banking sector outlook reports, click the weblink for each country:

Belgiumhttp://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1219976

Denmarkhttp://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1219832

Francehttp://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1219967

Germanyhttp://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1220627

Italy http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1220144

Netherlandshttp://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1219775

Spainhttp://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1219888

Swedenhttp://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1219921

Switzerlandhttp://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1219767

UKhttp://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1219906

For more research and insight on the coronavirus (COVID-19) outbreak, please see moodys.com/coronavirus

NOTE TO JOURNALISTS ONLY: For more information, please call one of our global press information hotlines: New York +1-212-553-0376, London +44-20-7772-5456, Tokyo +813-5408-4110, Hong Kong +852-3758-1350, Sydney +61-2-9270-8141, Mexico City 001-888-779-5833, São Paulo 0800-891-2518, or Buenos Aires 0800-666-3506. You can also email us at mediarelations@moodys.com or visit our web site at www.moodys.com.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Bernhard Held, CFA
VP-Sr Credit Officer
Financial Institutions Group
Moody's Deutschland GmbH
JOURNALISTS : 44 20 7772 5456
Client Service : 44 20 7772 5454

Sean Marion
MD-Financial Institutions
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS : 44 20 7772 5456
Client Service : 44 20 7772 5454

Releasing Office :
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main, 60322
Germany
JOURNALISTS : 44 20 7772 5456
Client Service : 44 20 7772 5454

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