S&P Global: Central European banks are resilient against auto industry turmoil.
1min read Standard & Poor's Global said on Tuesday that the turmoil in the European auto industry could hit the economies of central Europe and damage banks' balance sheets, but added that banks' strength would be enough to withstand the pressure on their auto portfolios.
Auto manufacturers across Europe have announced factory closures and mass layoffs as demand has faltered, costs have risen, competition has intensified and the shift to electric vehicles has been slower than expected. The auto industry is a pillar of economic growth in central Europe, accounting for 5-10 per cent of gross domestic product and 5 per cent of employment in the region, according to S&P Global.
“Although the direct credit exposure of central European banks to the auto industry is relatively low, accounting for 3-5 per cent of corporate credit, a significant downturn in the industry could damage the region's economy and asset quality,” S&P Global said in a report. “While further pressure in the auto industry could lead to additional credit losses, mainly due to spillover effects on suppliers, we believe that the profitability and capital levels of central European banks are strong enough to absorb the financial shock.”
Despite the shift by major carmakers to financing from capital markets, S&P Global said the auto industry's impact could still trigger a major chain reaction. The threat of US tariffs on European imports, the EU's tougher emissions regulations from 2025 and fierce competition from Chinese electric vehicle manufacturers could all pose additional threats, S&P Global said. In addition, the disruption of global trade and the shift to electric vehicles could create opportunities for some countries, such as Hungary or Serbia, S&P Global added.
