Commentary

European Banks' Cost Of Risk Remained Steady in FY 2023; Some Deterioration in Germany, Portugal, Ireland and Spain

Banking Organizations

Summary

Morningstar DBRS has released a commentary on the cost of risk (CoR) of banks in Europe in FY 2023, including banks in Austria, France, Germany, Italy, the Netherlands, Spain, Sweden, Norway, Portugal, Greece, Denmark, Finland, Belgium, Ireland and the United Kingdom.

Key highlights include:

-- European banks' CoR in FY 2023 remained steady, with no major deterioration from FY 2022 and H1 2023
-- The rapid increase in interest rates since end-2021 has not yet had the impact that we initially anticipated on banks' asset quality.
-- However, there has been some deterioration in CoR levels at some banks, that whilst not material, could continue in coming quarters, particularly associated with CRE.

"We expect most European countries to continue to grow and report resilient unemployment levels, which should in our view continue supporting European banks' asset quality" said Maria Rivas, Senior Vice President from the Morningstar DBRS Financial Institutions team. "Whilst interest rates are likely to start reducing in coming quarters, increased challenges in the CRE sector and geopolitical risks could translate into higher provisions for banks in coming quarters".