Systemic Banks Split on Credit Provisions Amid Sector Stress
Divergent asset quality trends emerge as Korean and European lenders hike provisions while North American peers see declines.
Credit loss trajectories are diverging across systemic lenders, with significant spikes in Asian and European portfolios contrasting with stability in North American retail and commercial books.
Woori Financial Group (WF) reported a 67.8% year-over-year increase in impairment losses. The bank attributed the surge to deteriorating asset quality within loans extended to vulnerable sectors. Shinhan Financial Group (SHG) also saw credit loss allowance provisions for corporate loans rise 35.9% to ₩898 billion.
European banks faced specific idiosyncratic shocks. HSBC Holdings (HSBC) saw expected credit losses climb 44% quarter-on-quarter to $1.3 billion, driven by a $0.4 billion fraud-related securitisation exposure with a UK financial sponsor. Barclays (BCS) recorded a £0.2 billion single-name charge in its investment bank, contributing to a year-over-year increase in credit impairment charges.
Broad growth and regulatory headwinds further pressured European reserves. Bbva (BBVA) increased impairment provisions by 35% year-over-year, citing generalized increases across business areas amid lending growth. Santander (SAN) recorded an additional gross provision of EUR 207 million to cover potential complaints regarding motor finance dealer commissions in the UK.
In contrast, North American banks reported improving or stable credit costs. Royal Bank of Canada (RY) saw total provisions for credit losses drop 36% year-over-year to $912 million, aided by lower requirements in personal and commercial banking. U.S. Bancorp (USB) reduced its provision for credit losses by 20.7%.
Bank of America (BAC) reported a $143 million decrease in its provision for credit losses. This trend of stability was echoed by U.S. Bancorp, which cited stable portfolio performance despite ongoing economic uncertainty.
Other global shifts included a 26.8% decrease in loan credit loss provisions at KB Financial Group (KB) and a 7.3% decline in the allowance for credit losses at Mizuho FG (MFG), the latter driven by charge-offs of loans to certain domestic corporate borrowers.