Pivotal Role of European Bank Lending to the Defence Sector is Under Pressure

The commentary focuses on European banks and defence sector lending.

The rise of geopolitical tensions and the ongoing war between Russia and Ukraine have resulted in a greater need for military spending across the European Union.

We expect banks to play a pivotal role in financing the defence sector, as we view public spending as not sufficient to fund the growing needs.

However, banks appear to be reluctant to lend to the defence sector as a result of ESG principles.

Despite EIB providing greater financial support, European defence funding will still be insufficient without public sector involvement.

"We expect banks to play a pivotal role in financing the European defence sector, as private funding becomes increasingly necessary to achieve greater production and development of military equipment." said Arnaud Journois, Senior Vice President from the Morningstar DBRS European Financial Institutions team. "Whilst European banks are often reluctant to support the defense sector, we have been observing a change in this trend with banks have been lifting their restrictions on lending to the defence sector, and the European Investment Bank planning to inject additional funds in response to the needs of the EU defence sector in the current geopolitical context."