In light of the latest United Nations Climate Change Conference, COP26, which took place in Glasgow, Scotland, much of the most notable recent banking activity has pertained to lenders’ commitments to address climate risks. In the United Kingdom, for instance, the Bank of England’s (BoE’s) governor, Andrew Bailey, confirmed in early November that he would step up scrutiny of how British financial institutions identify such risks, stressing that the issues already impact the UK economy. “As we enter 2022, we will be shifting gears in our supervisory approach domestically to ensure firms are identifying and addressing climate-related financial risks,” Bailey said in his November 3rd speech at the conference.
Several UK banks have also joined a global alliance aimed at ending reliance on coal power worldwide. HSBC Group, Lloyds Banking Group and NatWest Group will be among 10 financial institutions signing up to the Powering Past Coal Alliance (PPCA), established by the UK and Canada in 2017.
French banks came under fire from the country’s financial regulators in the run-up to COP26, specifically regarding the vagueness of their climate commitments. According to Autorité des Marchés Financiers (AMF) and Autorité de Contrôle Prudentiel et de Résolution (ACPR), which issued a joint report on October 26, financial institutions (FIs) did provide clear information on exit dates from the coal industry last year, but their policies remain inconsistent and often lack transparency. The report recommended that FIs agree on common definitions to measure fossil-fuel exposures and cover the entire value chain.
French lenders are also set to maintain their third-quarter loan loss provisions (LLPs) throughout 2022, alongside their Spanish peers, as they remain in wait-and-see mode with regards to the impacts of the coronavirus pandemic. Although other European lenders have begun to release some of those funds as lockdowns have ended and economic activity has returned with some force, French and Spanish banks have been among the most cautious in the region, representing seven of the top ten spots for loan loss provisions during the first six months of the year across the continent’s 25 largest lenders by total assets, according to S&P Global Market Intelligence.
Poland’s biggest lenders warned that efforts to boost green finance would require further regulatory supports and economic incentives, particularly if the Polish banking sector wants to succeed in lowering its reliance on coal. Last year, the country accounted for 96 percent of the European Union’s (EU’s) total hard-coal production and 43 percent of total EU hard-coal consumption, according to Eurostat. And figures provided by Polish pro-climate organization Rozwój Tak-Odkrywki Nie (RT-ON) put the value of loans provided to Polish companies involved in dirty, mainly coal-related investments at roughly 36 billion zlotys (US$9.06 billion) between October 2018 and October 2020.
After the Czech central bank, Czech National Bank (CNB), raised its benchmark two-week repo rate by 75 basis points at the end of September—the biggest increase in nearly a quarter of a century—the Czech Banking Association (CBA) announced that it expects the move to impact corporate loans the most, while the impact on mortgages will be less pronounced, given that they respond more to longer-term rates. “As such, mortgage rates will continue to increase moderately, continuing the trend of the recent months. However, there is no need to be concerned about mortgage rates rising as fast as the CNB is increasing its rates,” the association concluded. More rate increases are widely anticipated, with Bloomberg News quoting the CNB’s governor, Jiří Rusnok, explaining that future decisions would be decided based on the size and frequency of further rate hikes.
The biggest Austrian banks will also benefit significantly from the CNB rate hike, especially given their sizeable presence in the Czech Republic. Erste Group Bank and Raiffeisen Bank International (RBI), in particular, rely on the country as a key foreign market, with the former having about 4.5 million Czech customers and the latter 1.4 million customers. According to S&P Global Market Intelligence data, Erste derived €382 million of its group-wide €1.96 billion operating income from its Czech business in the second quarter, while RBI’s Czech presence accounted for €124 million of its €1.38 billion group-wide operating income.
Sberbank Europe AG, a subsidiary of Russia’s biggest bank, recently confirmed that it would sell some of its banks in Central and Eastern Europe with total assets of €7.33 billion ($8.51 billion). The sales are being completed so that Sberbank can focus on key markets and explore new business models. The banks due to be sold are located in Bosnia and Herzegovina, Croatia, Hungary, Serbia and Slovenia, totalling 162 branches and around 600,000 clients at the end of 2020. And they will be offloaded to AIK Banka a.d. Beograd, Gorenjska Banka d.d., Kranj and Agri Europe Cyprus Ltd., with the sales expected to be finalised next year.
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