Non-performing loans of banks in the EU increased from €363bn to €365bn between September and December 2023, according to the European Banking Authority’s risk dashboard, published this month.
The NPL ratio increased from 1.8 per cent to 1.9 per cent but remains benign, noted EBA. But despite the moderate increase, it still represents a reversal of the long-term trend of asset quality improvement, said Scope Ratings in a report published this week.
“And even though we are forecasting a modest economic rebound in the second half of 2024 aided by expected rate cuts, NPL formation will likely continue rising moderately this year because of a time lag,” the rating agency added.
The situation differed among countries with Germany (+€4bn) and Austria (+€1.8bn) experiencing the largest NPL increases, counter to continuing improvements in the Netherlands (-€1.2bn) and Italy (-€1.7bn).
The increase in NPLs has stemmed mainly from corporate exposures while the retail sector has been more resilient, says Scope Ratings. Still, exposure to real estate and construction remain areas of concern. Over the period, NPLs collateralised by commercial real estate increased marginally and the NPL ratio of these exposures was 4.3 per cent, according to the risk dashboard.
“We do not see a general deterioration of NPL ratios by the corporate sector nor a concentration of issues in specific sectors. The construction sector appears most frequently among the top three sectors with the largest NPL ratios across countries,” concluded Scope Ratings.
So far, the European banking sector has proved resilient but experts anticipate the deterioration of banks’ asset quality and loan books as high interest rates and geopolitical tensions persist.
