”In terms of overall loan quality, Swedish banks are at the top of the range, with robust coverage for potential further weakening. The highest problem exposures are for the selected German commercial real estatecentric banks that tend to have relatively limited direct coverage via impairments but have topped up the support with collateral and guarantees. However, on a national level, Germany’s non-performing exposures are generally lower than those in Southern Europe. Spanish and Italian banks, which have higher NPE ratios, also have somewhat higher impairment coverage ratios, potentially mitigating the impact of further weakening on their earnings. Banks are overall well prepared for weakening in exposures, while lower impairment coverage points to higher risk ahead. To conclude, the strong tailwind from higher interest rates has come to an end, and banks that are relying more on fee-based income instead of solely net interest income, and with the potential for M&A are a bit better positioned.“
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Morten W. Langer
