European Banks' NPLs Resilient in FY 2023, But Increased Pressure in Some Countries

Morningstar DBRS has released a commentary on the Non-Performing ratio (NPL) 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' NPL ratio remained resilient at end-FY 2023, although banks in certain countries started to show some deterioration, namely in Germany, largely associated with the CRE sector.
-- Banks in Greece showed the largest improvement in NPL ratios in FY 2023
-- Banks in other countries that have traditionally had high NPLs (Spain, Portugal, Italy) have continued to reduce their NPL ratios, although we expect the pace of reductions to slowdown or pause in 2024.

"The full impact of rising interest rates has not been fully passed onto the Banks' asset quality and our view is that resilient economic environment and unemployment levels should continue to prevent an escalation of asset quality problems at European banks" said Maria Rivas, Senior Vice President from the Morningstar DBRS Financial Institutions team. "Having said this, we continue to expect some NPL ratio deterioration at some banks, particularly associated to certain sectors that are under pressure, such as the commercial real estate and private credit and at the same time we consider that the pace of reduction achieved in recent years at certain banks is unlikely to be sustained in FY 2024."