Irish Banks are among the highest in Europe regarding coverage of their expected credit losses (ECL), according to a report by Mazars, an international audit, tax and advisory firm.
The report analysed the impact of Covid-19 on the expected credit losses in European banks' financial disclosures for the first half of the year.
It is based on an analysis of 26 banks in 11 countries, including two Irish - Bank of Ireland and AIB.
The data revealed an average decrease of the ECL charge in P&L by 86%, while UK and Irish banks have experienced an ECL profit.
Most of the banks that experienced the highest increase in ECL charges last year are now among those that have a net ECL profit in H1 2021.
The data also revealed an average amortised cost loan coverage ratio that has slightly decreased mainly due to a lower coverage ratio for stage 3 instruments.
Meanwhile, the report reveals that Irish Banks are not outliers in their approach to estimate expected credit losses impairment reserves.
It found that Irish Banks are still among the highest in Europe regarding coverage of their expected credit losses with 3.3% and 2.6% of coverage for Irish Banks compared to an average of 1.7% in the 26 banks sampled in the study.
Michael Tuohy, Partner, Financial Services Audit & Assurance, Mazars, stated;
"The evolution of reduced provisions for expected credit losses in the first half of 2021 demonstrates that the banking sector is clearly more optimistic in regard to its global economic outlook for the future," said Michael Tuohy, Partner, Financial Services Audit & Assurance, Mazars.
"Throughout the EU, the Irish Banks remain among the most prudent banks in their coverage of exposures for expected credit losses.
"In addition, the significant level of overlays applied by banks still shows that models used for the estimation of expected credit losses may not currently align to the current economic context and that the estimation process is particularly complex and remains difficult to predict," he added.
