French public bank sees increased risk of default on Covid loans

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French public bank sees increased risk of default on Covid loans


The risk of companies defaulting on French state-guaranteed loans is increasing as the Covid-19 crisis continues with further restrictions on activity, public investment bank Bpifrance has said.

The lender now expects a default of between 5.5% and 7.5% of all French Covid loans, instead of 4.5% to 6.5% as it had estimated in October. The increased risk stems from the recent opportunity given to French companies to delay repayment of their loans for an additional year, which adds to the risk borne by the country’s banks.

“Given the lack of visibility that we still have today, we are starting to see that many companies will use this delay option,” Deputy CEO Arnaud Caudoux said when presenting the bank’s results on Thursday. “All other things being equal, it increases the amount of losses we can expect a bit.”

Although still relatively small, the rise in defaults in the euro area’s second-largest economy may be a sign of wider distress to come with the withdrawal of government measures to support the pandemic. A longer loan term means a higher probability of default, especially as Paris and 15 other departments in France entered a new foreclosure on March 20.

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