The main challenges facing banks in Europe Euro area banks face a number of challenges; new due to Covid-19 outbreak and existing ones: First, banks are tied-up to macroeconomic and monetary policy developments. Despite the projected recovery of the European economy in 2021, risks to the projections remain elevated.
The resurgence of the pandemic and the new round of restrictive measures across Europe could lead to a longer and deeper recession associated with a wave of corporate defaults, rising non-performing loans and job losses. The low interest rate environment, combined with a sluggish economic recovery, remains a big challenge for European banks, with clear implications for their core profitability and capital generation capacity.