Nicholas Comfort
3 min read
In This Article:
(Bloomberg) -- European banks would see their profits eroded if an escalation of trade tensions with the US leads to souring corporate loans, according to S&P Global Ratings.
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Credit Agricole and BPCE of France, Frankfurt-based Commerzbank, Dutch lender Rabobank and Denmark’s DLR Kredit stand to be hit hardest, according to calculations by the credit ratings company. S&P said none of the 91 banks it examined were projected to face an annual loss in its stress test.
The uncertainty over how the US will implement tariffs on trading partners has investors asking how big the hit will be for Europe. Yet the region’s lenders, often seen as a proxy for the broader economy, face the latest shock with comparatively low levels of bad loans and profits that have been bolstered by higher interest rates.
Bloomberg reported last month that a biennial regulatory stress test run by the European Central Bank and the European Banking Authority is on track to deliver a lesser hit to banks’ capital ratios than the previous one.
S&P’s test included three hypothetical scenarios for how an escalation of trade tensions could play out. In the most severe, the median hit to banks’ profit stood at 29%, the ratings company said in a report to be published on Tuesday.
S&P said the five banks stood out because they had a combination of more exposure to sectors for which it applied higher loss rates, larger loan books compared to total assets, lower expected profitability and higher economic risk in the countries where they operate.
“We find the S&P stress test to strongly exaggerate potential losses,” a DLR Kredit spokeswoman said in an email to Bloomberg, adding that the firm disagrees with the report. She cited the fact that just 4% of Danish agriculture exports are to the US and said the sector “is highly resilient to an economic setback.”
“We understand the points of concern highlighted by S&P. We are also internally monitoring the risks related to the increase in tariffs, which are not yet finalized,” a BPCE spokesman said by email. “However, regarding the strength of BPCE’s banking model, we would like to remind that S&P reaffirmed BPCE’s rating last week at A+ stable, which is among the highest ratings in the banking sector.”
A spokeswoman for Commerzbank declined to comment. Officials at Credit Agricole and Rabobank didn’t respond to requests for comment from Bloomberg.
