After a sharp rise in allocations to reserves in 2020, reflecting an anticipation of severe deterioration of asset quality against the backdrop of the health crisis, 2021 was marked by a limited level of risk, due firstly to the effectiveness of the support measures and secondly to the strong rebound of economic activity.
Loan loss reserves represent close to six years of the historical average cost of risk, 34% of which is related to the provisioning of performing loans for Crédit Agricole S.A., 44% for the Regional Banks, and 39% for Crédit Agricole group.
Coverage ratios strengthening the solidity of the Group.
*Loan loss reserves, including collective provisions. Coverage ratios are calculated based on loans and receivables due from customers in default
A low level of doubtful loans reflecting the quality of our assets and of our customers.
… Alexandra Boleslawski, Chief Risk Officer
“Crédit Agricole Group recorded a cost of risk of €2,193m in 2021 and €1,849m, which is 18 basis points on an underlying basis, excluding specific exceptional items. At Crédit Agricole S.A. level, , the cost of risk totalled €1,576m and €1,232m on an underlying basis excluding these same specific elements, which corresponds to 28 bps.
These figures represent a reduction in the cost of risk by approximately one half from 2020 and a return to historically very low levels. This result reflects the success of the carry measures of the economy of the Government, supported by the European Central Bank (ECB) and deployed with the support of the banks. By preventing a large number of defaults by economic agents, this carry resulted in a cost of risk that proved to be very contained.
At the same time, the Group continued to apply a prudent approach by continuing to fund prudential provisions in the amount of €595m. With the contribution of Creval in Italy, the total Crédit Agricole Group inventory of prudential provisions rose by nearly €800m in 2021 and by slightly more than €2bn over the two financial years 2020 and 2021, which were impacted by the Covid-19 crisis. At year-end 2021, Crédit Agricole Group has €18.9bn in total provisions, including €7.5bn in prudential provisions corresponding to more than two and a half years of the average cost of risk observed over the long period before the crisis.
Since the end of the financial year, the environment has been very significantly modified by the conflict in Ukraine. The Group is present in both countries: in Ukraine with a retail bank, and in Russia with the activities of its Corporate and Investment Bank. Exposures in these two countries (on-shore and oﬀ-shore) represent less than 1% of Crédit Agricole S.A.’s commercial lending. Our overall provisioning level, particularly the €3bn in provisions on performing Crédit Agricole SA loans, out of the €7.5bn in the accounts of the Group, means that we can calmly approach our ability to absorb the direct and indirect impacts of the war.
(1) Gross outstanding loans to customers excluding credit institutions as at 31 December 2021.
Even if the risk level has remained limited until now, the exit from the crisis and the anticipated progressive end of the accommodating budget and monetary policies are generating many uncertainties:
Finally, the global context is marked by many high political and geopolitical risks.
Risk of loss from the failure of a counterparty and its resulting inability to meet commitments.
Risk of loss arising from changes in market parameters.
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Risks of losses arising from inadequate or failed processes, personnel, information systems (including information security and privacy, as well as cyberspace risks for which the vectors are the telecommunications systems and means) or external events.
Risk of losses arising from inadequate pricing, incorrect valuation of provisions for claims or inadequate reinsurance.
Risks arising from failure to comply with regulations and legislation governing banking and financial activities. Risks arising from exposure to civil or criminal legal proceedings.
Risks related to losses, decreases in revenue or income due to decisions related to our strategic choices and/or competitive positioning, as well as the macroeconomic, political and regulatory environment.
Environmental, social and governance risks result from the Group’s exposure to counterparties that may potentially be adversely impacted by these factors; they are assessed as risk factors that influence the other existing risk categories, including credit, operational, legal and others.
Environmental risks include transition risks, related to the development of a low carbon and more sustainable economy, physical risks, whether intense or chronic and other risks, notably environmental damage, the depletion of natural resources or the loss of biodiversity.
The Group uses climate scenarios to guide its strategy, notably the SDS (Sustainable Development Scenario) of the International Energy Agency to set the main points of alignment of our portfolios with the Paris Agreement.