European Banks Reported Stable Cost of Risk in Q1 but Some Challenges Remain

We have released a commentary analysing European banks' Cost of Risk in Q1 2024.

Key highlights include:

-- European banks' CoR remained stable in Q1 2024, with most banks reporting similar CoR levels as in FY2023.

-- Some banks continued to show a steady increase in CoR levels in Q1 2024, following the trend seen in FY2023, albeit nonmaterial and below levels in FY2019

"We consider interest rate cuts could be positive for borrowers in the medium term, however, we do not expect the first rate cuts to have a significant positive impact on asset quality immediately and some deterioration is still expected in the medium term" said Maria Rivas, Senior Vice President & Sector Lead, European Financial Institution Ratings at Morningstar DBRS."Challenges remain for European banks, including elevated geopolitical risks, some remaining inflationary pressures and weak economic performance as well as challenges in the real estate market, particularly in commercial real estate. This could eventually translate into higher CoR for European banks, particularly for those that have shown steady increases since FY2022."