Central Europe’s banks can face up to automobile sector turmoil, S&P says By Reuters

By Gergely Szakacs

BUDAPEST (Reuters) – Turmoil in Europe’s automobile sector might hit the central European economic system and damage banks’ asset high quality, S&P International mentioned on Tuesday, though it added that lenders had been robust sufficient to face up to stress of their automotive portfolios.

Automakers throughout Europe have introduced plant closures and large layoffs as they wrestle with weak demand, excessive prices, competitors from China and a slower-than-expected transition to electrical autos.

The sector is a mainstay of central Europe’s financial progress, accounting for five% to 10% of the area’s gross home product and 5% of its employment, in response to S&P.

“Whereas direct credit score publicity of CEE banks to the automotive sector is comparatively low, at about 3%-5% of complete company loans, a big downturn might impair the area’s economic system and banks’ asset high quality,” it mentioned.

Though main carmakers have diversified their funding away from financial institution loans to capital markets, S&P mentioned shocks within the trade might nonetheless result in important knock-on results.

The specter of U.S. tariffs on European automobile imports, tighter emissions laws within the European Union from 2025 and intense competitors from Chinese language electrical carmakers might pose further challenges, S&P mentioned.

“Whereas additional stress within the automotive trade might result in further credit score losses – primarily due to potential spillovers to suppliers – we consider CEE banks’ earnings and capital ranges are sufficiently robust to soak up the monetary hit,” it mentioned.

It added that disruptions to international commerce and the shift to electrical automobiles might create alternatives for some nations, similar to Hungary or Serbia, with massive Chinese language banks actively monitoring investments and alternatives within the area.

Below Prime Minister Viktor Orban, Hungary has grow to be an necessary commerce and funding associate for China, in distinction with another EU nations which can be contemplating changing into much less depending on the world’s second-largest economic system.

“ICBC arrange a financial institution in Austria in 2019 and from there they’re working throughout CEE, like different Chinese language banks with subsidiaries within the area,” S&P analyst Cihan Duran mentioned, additionally citing Financial institution of China and China Building Financial institution (OTC:) as examples.

“There’s huge curiosity in Hungary as one of many largest markets the place they attempt to associate up with Chinese language corporations in Hungary, but in addition with Hungarian corporations having partnerships with Chinese language investments and funds.”