Banks struggle to ride to the rescue in Europe's cash crunch battle
Send a link to a friend
[March 24, 2020]
By Andrea Mandala, Jesús Aguado and Tom Sims
MILAN/MADRID/FRANKFURT (Reuters) - Corrado
Sforza Fogliani is on the frontlines of European efforts to keep the
region's economy alive amid the coronavirus pandemic.
His small cooperative bank, Banca di Piacenza, in Italy's virus-ravaged
north, has been flooded with applications from customers seeking loan
extensions, debt relief and renewal of credit lines.
Buried in paperwork and with Rome and banking lobbies still at odds over
who should be on the hook for defaults when a six-month debt holiday
ends, Banca di Piacenza's loan officers have only been able to process a
fraction of the 1,000 applications they have received.
It's a scenario playing out in banks across the region -- default fears
and bureaucratic hurdles slowing down what is meant to be a swift
infusion of cash for hard-pressed businesses -- and it threatens
Europe's efforts to rescue its flatlining economy.
"The risk is that once we get through all this red tape the horse won't
drink because it is no longer able to," Fogliani, Banca di Piacenza's
executive chairman, said.
Faced with its worst crisis since the second world war, Europe is
relying on banks to funnel a wall of money to businesses as countries
impose lockdowns to stop the spread of the virus, snarling supply chains
and decimating revenues.
Lenders' funding costs have been slashed, capital requirements have been
relaxed and over 1 trillion euros has been pledged in loan guarantees
and payment supports.
But for some European banks, which are still grappling with the legacy
of the last financial crisis, the virus outbreak risks derailing their
Even with government guarantees, banks will still have to assume some
risk of default which, on top of negative interest rates, will eat into
already wafer-thin profit margins. Deutsche Bank, Germany's largest
lender, which had finally been making progress on its turnaround, warned
on Friday that the virus may mean it misses its targets.
And while passing on interest rate cuts is straight forward, making snap
decisions on customer creditworthiness, hard to do at the best of times,
is especially difficult when lenders are facing a deluge of applications
and a depleted workforce logging on from home.
The range of challenges poses a threat to Europe's banks, whose share
prices have already plumbed record lows, the companies they serve, and
the broader European economy.
"I see the situation as a slow-moving systemic financial crisis. It is
so slow-moving that you almost can watch it coming," said Jan Pieter
Krahnen, professor of finance at Goethe University Frankfurt.
HAND OUT THE MONEY
In Spain, where virus deaths have surpassed 2,000, there is confusion
about how much lenders must share in the burden of 100 billion euros in
state-backed credit lines.
Banks are pushing for the state to guarantee on average 80% of the loans
and for it to apply to both existing and new loans. Spain's Economy
Minister Nadia Calvino said the government would discuss details of the
state guarantees at a cabinet meeting on Tuesday.
[to top of second column]
The financial district is photographed on early evening in
Frankfurt, Germany, January 29, 2019. REUTERS/Kai Pfaffenbach
To encourage banks to provide a lifeline to businesses running out
of cash, Italy's government is working on a guarantee covering 90%
of new credit.
Germany, whose export-dependent economy is highly exposed to the
supply chain problems caused by the coronavirus, is offering
unlimited funds to companies through its KfW bank, which was founded
to finance the nation's rebuilding after World War II.
Deutsche Bank and Commerzbank said on Monday they had received
thousands of queries from mainly small and medium-sized business
clients for the KfW credits.
"The phones are ringing off the hook," said Stefan Bender, head of
Deutsche's corporate bank in Germany.
Amid the promise of funds, Thomas Giessing, head of a local savings
bank in Heinsberg on the western-most edge of Germany, says he is
fielding a surge of requests for debt relief from local businesses.
The region has been the hardest hit in Germany by the coronavirus.
Some of its manufacturing firms have been unable to ship their goods
or access raw materials because of supply chain problems and local
tradesman such as plumbers and electricians have found it difficult
to get work because of contagion fears.
Giessing, a former Olympic runner, understands that speed is
required but after years of low margins caused by ultra-easy
monetary policy, he is still unsure of what he can offer because the
loans are only partially guaranteed by the government.
"This has left its mark on all sectors, big and small...All of us
want to be able to supply companies with liquidity," he said.
KfW began accepting applications on Monday and said it should be
able to process small loans in minutes, while loans of more than 10
million euros will take a week to 10 days. But some bankers fear it
will weeks, not days, for credits to process.
That is too slow, said Bettina Stark-Watzinger, a member of
Germany's Bundestag finance committee.
"Flooding the market with money is not enough. You need the credit
demand, and you can only have credit demand if you can hand out the
money," she said.
(Additional reporting by Patricia Uhlig, Hans Seidenstuecker and
Hakan Ersen in Frankfurt and Valentina Za in Milan. Editing by
[© 2020 Thomson Reuters. All rights
Copyright 2020 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed.
Thompson Reuters is solely responsible for this content.