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October 3, 2022

Europe’s largest banks are well placed ahead of 2023

By Alejandro Gonzalez

Banks buoyed by ample capital buffers, sound asset quality and considerable loan loss reserves

Fitch Ratings has reported that Europe’s 20 largest banks – including many of the Eurozone’s top asset finance providers – covered in its latest quarterly credit tracker are in a strong position to manage an anticipated downturn in their respective national economies. 

“Ample capital buffers, sound asset quality, considerable loan loss reserves and higher interest income provide sufficient rating headroom to weather a short recession in Europe in 2023,” the credit rating agency said. 

The conflict in Ukraine has to date only had a moderate impact on large European banks in the first half of this year, besides those lenders with direct exposure - Societe GeneralUniCreditINGDeutsche BankIntesa Sanpaolo and Credit Agricole were among Europe's most exposed banks to Russian counterparties earlier this year.

Europe’s top banks face weaker profits after strong 2021: Fitch

Fitch reported that revenue in 2H 2022 should be underpinned by higher interest rates, loan growth and increased income from reinvestments into higher-yielding securities. 

"While profitability should be broadly stable in 2H 2022, prospects are decidedly weaker for 2023 as we expect a recession in the eurozone and the UK," it said in a statement. 

"Capitalisation remains a strength with ample buffers over requirements. Capital ratios only modestly eroded in 2Q 2022, following additional shareholder payouts, risk-weighted asset inflation and negative market effects."

Fitch said bank dividend payouts are "likely to be less frequent" on the back of asset inflation expectations. 

"We expect profitability to decline in 2023, as the revenue benefits from higher interest rates and wider margins will be eroded by rising loan impairment charges, weaker business volumes and considerable cost pressures. We expect asset quality to weaken next year, but for a full-blown asset-quality crisis to be avoided thanks to country-specific and EU-wide support schemes."

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