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Has your view on the fundamentals of the financials sector changed following the release of Q3 2020 results?

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  • November 2020
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  • Has your view on the fundamentals of the financials sector changed following the release of Q3 2020 results?

Fundamentals of European banks and insurers continue to be very strong and resilient, despite Covid-19 uncertainty. Q3 bank results have surprised positively and were ahead of expectations and positive from a credit perspective as banks continue to accumulate excess capital and loan loss provisions declined close to preCovid-19 levels.
There are three main trends that stand out:
• Loan loss provisions have declined materially as banks have front-loaded in the first half.
• Capital ratios continue to rise and excess capital positions are now well above pre-Covid-19 levels.
• Profitability momentum has started to improve and, on aggregate, pre-provision profits of the sector have been more than sufficient to absorb higher credit losses. On capital, banks continue to manage their balance sheets conservatively and accumulate capital to protect bondholders from uncertainty. Combined with regulatory easing, this has led to excess capital positions reaching all-time highs. Taking HSBC as an example, excess capital rose from USD 29 billion in FY 2019 to USD 40 billion in Q3 2020, reflecting strong capital accumulation as the group’s common equity tier one ratio (CET1) now stands at 15.6%, compared to 14.7% in FY 2019.

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