Bank profitability unlikely to return to pre-pandemic levels before 2022

These reports were provided by the regional central bank in its latest financial stability review. They have tried to achieve through stronger regulatory scrutiny and low interest rates.

In the euro area as a whole banks are making smaller allowances for bad loans than levels seen after the last financial crises or than are now being estimated by peers in other jurisdictions, notably the United States, the ECB warns. And a bank's profitability is a reflection of the health of its economy.

The recent resurgence in infections and new containment measures may lead to a downward revision of bank profitability forecasts in the coming years, the ECB added. Consumers and businesses become wary of taking on big expenses in a downturn and investment decisions are put on hold. Three pharmaceutical companies have recently announced their COVID-19 vaccines will be ready for distribution until 2021. A Covid payment break scheme operated by the banks has largely been wound down since September but figures issued yesterday show the vast majority of mortgage holders who got a payment break are already back making full payments. There is also uncertainty on when economic normalcy will resume.

The banking system is seen as a key element to support the economic recovery in the wake of the pandemic. As for interest rates, they are expected to remain low following the ECB's ultra-loose monetary policy. See, Europe's companies have been borrowing significantly more money during the pandemic, and they've relied on government and European Central Bank support to pay off the loans.

But such policies have also eroded public support for the institution, Schnabel warned. Therefore, leaders will have to take a strict stance between providing aid and restraining the debt levels.