LONDON, June 27 (Reuters) – The actual property sector poses solely a average systemic threat to most European banks, as they’ve solely modest publicity to it of their mortgage books, though Sweden and Germany are outliers, S&P International Rankings mentioned in a report on Tuesday.
In its 3Q23 credit score circumstances report, the scores company mentioned the outlook for elements of the property market was poor, on condition that financing circumstances in Europe are anticipated to maintain tightening as central banks elevate charges to sort out inflation.
“The outlook for key segments inside European actual property is poor, though solely a average systemic threat, in our view, given the position and power of the bigger European banks,” S&P mentioned.
Whereas European economies, households, and companies have proved pretty resilient within the face of the quickest tightening cycle because the international monetary disaster, credit score dangers lie forward because the lagged influence of stubbornly excessive inflation and better rates of interest take a toll, it added.
In actual property, places of work, notably in non-prime areas, and logistics are extra weak, whereas within the residential sector, S&P anticipates extra stress in nations with a excessive share of variable-rate mortgages and the place the rate of interest rise is largest, equivalent to Sweden.
Nevertheless, residential mortgage portfolios are unlikely to be a significant supply of credit score losses for European banks given the relative power of family funds and labour markets, in addition to strict regulatory requirements for mortgage lending.
Going ahead, S&P sees as prime dangers a fragile financial development; a doable escalation and broadening of the Ukraine-Russia battle; and better rates of interest, compounded by restricted entry to financing, notably for lower-rated corporations, at a time when banks tighten their lending requirements and central banks withdraw liquidity from fixed-income markets.
In its base case, the agency expects eurozone financial exercise might contract in the direction of the tip of the yr because the impact of the post-pandemic restoration fades and better charges chew, which is able to possible dampen demand.
Reporting by Chiara Elisei; Enhancing by Amanda Cooper
Our Requirements: The Thomson Reuters Belief Rules.
Chiara studies on the European credit score markets, spanning completely different nations, sectors and asset lessons from funding grade bonds all the way in which to distressed debt. She beforehand labored at Debtwire as Managing Editor, heading up a workforce of reporters and analysts specialised on sub-investment grade debt. Chiara holds a PhD in Classics from Scuola Normale Superiore di Pisa, Italy.