The commercial banking sector in Eurozone after the pandemic : the paths to recovery

Abstract

PURPOSE: The aim of the paper is to address the situation in the Eurozone commercial banks’ sector during the pandemic and the mechanisms of the COVID-19 impact on the sector. It discusses the decline of profitability because of the pandemic, the growth of non-performing loans (NPLs) in banking sectors of some Eurozone member countries, as well as the management of the situation.

DESIGN/METHODOLOGY/APPROACH: The literature review and meta-synthesis from extant studies was used. Based on the review, a causal link between the current situation in the Eurozone banking sector and the possible paths of its recovery were identified.

FINDINGS: Commercial banks in Eurozone were affected by the consequences of the pandemic situation, especially in terms of lending activity and profitability, what may lead to a considerable increase in non-performing loans. The diversity of the situation in different countries increases the difficulty of prediction. There are some positive, neutral, and negative scenarios possible to happen. It is still a great role for the banking authorities to manage the post-pandemic situation and to provide proper recovery plans, especially dedicated for those small and medium sized banks, which are not covered by the solutions provided by the banking union.

PRACTICAL IMPLICATIONS: The paper analyses the current situation in the banking sector in Eurozone. It also presents the possible scenarios in the future and the paths leading the banking sector to recovery. Such analyses are significant for the post-pandemic policies implemented both, on Eurozone and national levels.

ORIGINALITY/VALUE: The identification of the main problems in the Eurozone banking sector because of the COVID-19 pandemic. The research findings may contribute to better understanding the need of implementation of bank recovery solutions, like the accomplishment of the banking union or the proposal of the securitization framework for banks’ non-performing exposures.