Higher Rates Will Help in Navigating Weaker Economies

Higher Rates Will Help in Navigating Weaker Economies

LONDON, January 16, 2023–(BUSINESS WIRE)–DBRS Morningstar has released a commentary discussing the outlook for European banks in 2023.

Key highlights include:

  • DBRS Morningstar anticipates a generally stable outlook for the ratings of European banks in 2023, despite a number of challenges facing the banks.

  • Geopolitical developments are set to continue in 2023 given the ongoing war in Ukraine and heightened U.S.-China tensions, and inflation remains high in spite of some signs of slowing down. Against this backdrop, DBRS Morningstar considers the levels of loan loss provisions will likely further increase.

  • However, DBRS Morningstar expects significantly higher Net Interest Income (NII) at European banks in 2023 to offset the increase in credit risk from weaker economic prospects. We have already seen material increase in NII in jurisdictions where interest rates increased quickly in FY22.

  • Some European jurisdictions are more exposed to changes in interest rates due to the predominance of variable rate pricing in the loan books, and DBRS Morningstar’s expectation is that the continued rapid increase in interest rates from mid-2022 across EU jurisdictions will add pressure to borrowers. Nevertheless, banks’ levels of Non-Performing Loans are still generally low.

“Overall, European banks are entering this current phase having demonstrated resiliency throughout the pandemic,” said Vitaline Yeterian, Senior Vice President, Global Financial Institutions at DBRS Morningstar. “NII is the main contributor to banks’ revenues, and we expect the higher interest rate environment to drive stronger NII, whilst at the same time the war in Ukraine, high inflation and weaker economies could further drive higher loan loss provisions. However, we expect most European banks are well positioned to maneuver this renewed challenging operating environment.”

To view the full report, click here: https://www.dbrsmorningstar.com/research/408371/european-bank-2023-outlook-higher-rates-will-help-in-navigating-weaker-economies

The DBRS Morningstar group of companies consists of DBRS, Inc. (Delaware, U.S.)(NRSRO, DRO affiliate); DBRS Limited (Ontario, Canada)(DRO, NRSRO affiliate); DBRS Ratings GmbH (Frankfurt, Germany)(EU CRA, NRSRO affiliate, DRO affiliate); and DBRS Ratings Limited (England and Wales)(UK CRA, NRSRO affiliate, DRO affiliate). For more information on regulatory registrations, recognitions and approvals of the DBRS Morningstar group of companies, please see: https://www.dbrsmorningstar.com/research/highlights.pdf.

The DBRS Morningstar group of companies are wholly-owned subsidiaries of Morningstar, Inc. © 2023 DBRS Morningstar. All Rights Reserved.

The information upon which DBRS Morningstar ratings and other types of credit opinions and reports are based is obtained by DBRS Morningstar from sources DBRS Morningstar believes to be reliable. DBRS Morningstar does not audit the information it receives in connection with the analytical process, and it does not and cannot independently verify that information in every instance. The extent of any factual investigation or independent verification depends on facts and circumstances. DBRS Morningstar ratings, other types of credit opinions, reports and any other information provided by DBRS Morningstar are provided “as is” and without representation or warranty of any kind. DBRS Morningstar hereby disclaims any representation or warranty, express or implied, as to the accuracy, timeliness, completeness, merchantability, fitness for any particular purpose or non-infringement of any of such information. In no event shall DBRS Morningstar or its directors, officers, employees, independent contractors, agents and representatives (collectively, DBRS Morningstar Representatives) be liable (1) for any inaccuracy, delay, loss of data, interruption in service, error or omission or for any damages resulting therefrom, or (2) for any direct, indirect, incidental, special, compensatory or consequential damages arising from any use of ratings and rating reports or arising from any error (negligent or otherwise) or other circumstance or contingency within or outside the control of DBRS Morningstar or any DBRS Morningstar Representative, in connection with or related to obtaining, collecting, compiling, analyzing, interpreting, communicating, publishing or delivering any such information. No DBRS Morningstar entity is an investment advisor. DBRS Morningstar does not provide investment, financial or other advice. Ratings, other types of credit opinions, other analysis and research issued or published by DBRS Morningstar are, and must be construed solely as, statements of opinion and not statements of fact as to credit worthiness, investment, financial or other advice or recommendations to purchase, sell or hold any securities. A report with respect to a DBRS Morningstar rating or other credit opinion is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. DBRS Morningstar may receive compensation for its ratings and other credit opinions from, among https://www.dbrsmorningstar.com/disclaimer/ others, issuers, insurers, guarantors and/or underwriters of debt securities. DBRS Morningstar is not responsible for the content or operation of third party websites accessed through hypertext or other computer links and DBRS Morningstar shall have no liability to any person or entity for the use of such third party websites. This publication may not be reproduced, retransmitted or distributed in any form without the prior written consent of DBRS Morningstar. ALL DBRS MORNINGSTAR RATINGS AND OTHER TYPES OF CREDIT OPINIONS ARE SUBJECT TO DISCLAIMERS AND CERTAIN LIMITATIONS. PLEASE READ THESE DISCLAIMERS AND LIMITATIONS AT https://www.dbrsmorningstar.com/about/disclaimer. ADDITIONAL INFORMATION REGARDING DBRS MORNINGSTAR RATINGS AND OTHER TYPES OF CREDIT OPINIONS, INCLUDING DEFINITIONS, POLICIES AND METHODOLOGIES, ARE AVAILABLE ON https://www.dbrsmorningstar.com. Users may, through hypertext or other computer links, gain access to websites operated by persons other than DBRS Morningstar. Such hyperlinks are provided for convenience only, and are the exclusive responsibility of the owners of such websites. DBRS Morningstar does not endorse the content, the operator or operations of third party websites. DBRS Morningstar is not responsible for the content or operation of such websites and DBRS Morningstar shall have no liability to you or any other person or entity for the use of third party websites.

The English version of this press release prevails.

View source version on businesswire.com: https://www.businesswire.com/news/home/20230116005364/en/

Contacts

Dennis Ferreira – European.Communications@dbrsmorningstar.com

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