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Research Announcement:

Moody's changes outlook on five European banking systems to negative

16 April 2020


Frankfurt am Main, April 16, 2020 -- Moody's Investors Service has reviewed the outlooks on nine European banking systems in light of the coronavirus pandemic, and changed the outlook to negative on five of them. These are Norway, Finland, Hungary and Portugal, which changed to negative from stable, and Slovakia, which changed to negative from positive. The outlooks on four other banking systems – the Czech Republic, Poland, Austria and Ireland – remained stable.

These updates follow similar reviews of the outlooks on the 10 largest European banking systems that Moody's published on 26 March 2020, available here: https://www.moodys.com/research/Moodys-Moodys-changes-outlook-on-six-European-banking-systems-to--PBC_1221171?cid=8G1W5TFFLL84316

Today's outlook changes reflect the likely consequences of the coronavirus outbreak in Europe. Moody's projects a cumulative contraction of the economy over the first and second quarters of 2020. Although supportive fiscal and monetary policy measures will likely aid recoveries with above-trend growth in subsequent quarters and in 2021, the output loss in the second quarter is unlikely to be recovered. In this environment, banks' problem loans will rise, and their increased loan loss provisions will reduce profitability. Most European banks' profitability is already low relative to global peers.

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

The change in the outlook on the Norwegian, Finnish, Hungarian and Portuguese banking systems to negative from stable reflects our expectation that all four countries will experience a sharp contraction in economic growth. Banks' profitability will weaken due to rising loan loss provisions and reduced lending growth.

While Norwegian banks currently exhibit low volumes of non-performing loans and very high levels of capitalisation, and benefit from generous crisis support measures underpinned by the country's sovereign wealth fund, the impact of the coronavirus on their asset risk will be exacerbated by the fall in oil prices.

In Slovakia, where the outlook for the banking system has changed to negative from positive, the coronavirus-induced slowdown will reverse a previous improvement in asset quality. Slovakia's high levels of household debt and significant dependence on exports could exacerbate the impact of the downturn.

Moody's has kept stable outlooks on the Czech, Polish, Austrian and Irish banking systems. In the Czech Republic and Austria, the increase in problem loans will start from a low base, and stronger bank profitability than in many other European banking systems adds to resilience. The deterioration of loan quality in Poland will likely be moderate as lending growth has been relatively subdued. In Ireland, problems loans had been reducing rapidly due to restructurings and portfolio sales. However, we now expect a delay in asset sales and an increase in new arrears. Even so, solvency is expected to remain strong.

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

Austriahttp://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1221336

Czech Republichttp://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1223280

Finlandhttp://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1221706

Hungaryhttp://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1223200

Irelandhttp://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1223759

Norwayhttp://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1223103

Polandhttp://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1223100

Portugalhttp://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1222178

Slovakiahttp://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1223257

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 [email protected] 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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