Loan losses are expected to increase slightly, but do not pose a significant risk to the economy
Non-performing loans (NPLs) in all forms of bank lending are projected to increase year-on-year, but their levels remain well below the peak of 8.4% recorded in 2013 after the euro area debt crisis.
The share of non-performing loans in total loans across the euro area is expected to rise to 2.0% in 2024 and 2.3% in 2025 and 2026.
France, Spain and Italy have similarly high non-performing loan ratios expected in 2024, at 2.7%, 3.0% and 2.9%, respectively. This is partly due to the large number of adjustable-rate mortgages in both markets, exposing borrowers to more risk. Cost will be higher.
Tighter regulations and lending standards after the global financial crisis have helped mortgage borrowers cope with higher interest rates, while savings accumulated by households during the pandemic and low unemployment rates across the region have led to higher debt payments. This should provide a cushion against It costs money. On the corporate side, an improving outlook for both energy prices and inflation, as well as recent evidence of rising profit margins, should limit the rise in the share of non-performing business loans.
Nigel Morden, EY EMEIA Banking and Capital Markets Leader, commented: “For the first time in four years, lending is not expected to contract in any loan category in 2025 as GDP growth accelerates in all major markets.” After years of weak loan growth, European banks We are ready to play a key role in supporting consumers and businesses across the region.
“This forecast suggests an opportunity for companies to rebalance their corporate priorities. The necessary emphasis on managing balance sheets and capital buffers in challenging economic conditions will help the banking sector become more We now have a solid foundation to pivot to a growth-oriented agenda, and from 2025 onwards we will see an increased emphasis on innovative technology, innovation and sustainability.”
Germany – currently the most difficult G7 economy
Germany’s economy is expected to stagnate this year as the highly industrialized market continues to be affected by global trade tariffs, high interest rates and energy prices. Overall, Germany’s GDP is projected to stagnate in 2024 (growth rate of 0.0%), representing the worst economic performance among the G7 this year, followed by 0.9% in 2025 and 0.9% in 2026. 1.6%.
The outlook for German bank loan growth this year is expected to remain weak, with overall bank loan growth expected to rise from a near-term peak of 6.9% in 2022 to 1.0% in 2024 from 0.9% in 2023. is expected to accelerate slightly. .
Mortgage lending in Germany is expected to grow from 0.9% in 2023 to 1.4% in 2024, rising to 2.3% in 2025, 4.6% in 2026 and 4.3% in 2027. Germany is the only major market in the euro zone where mortgage lending is not expected to decline. This year’s mortgage market.
Consumer credit is projected to experience negative growth (-0.9%) in 2024. Although consumer behavior in Germany is less likely to take out unsecured loans than in other markets, this is the second consecutive year of contraction, with growth expected to reach 1.2% in 2025 and 3.4% in 2026. It will be. , associated with lower inflation and real-time wage increases.
On the corporate lending front, business loan growth will be 0.9% this year, down from 1.1% in 2023 and a peak of 8.9% in 2022, due to sluggish demand for industrial products overseas, tightened monetary policy, and heightened uncertainty. % is expected to slow down. Affect business investment.
France – Olympics boost credit demand
The French economy is currently broadly in line with the euro area average, with French GDP growth expected to be 1.2% in 2024. Looking further ahead, the EY European Bank Lending Economic Forecast predicts annual GDP growth of 1.1% in 2025 and 1.5% thereafter. % in 2026.
The French economy is highly tied to domestic demand and is less affected by changes in global trade and export flows than neighboring Germany. Domestic credit demand in France is currently weak and is being significantly affected by the current political instability. The mortgage market in particular is experiencing a sharp slowdown in capital flows, contracting by 0.5% this year but rising by 3.8% in 2025 and 5.1% in 2026.
Total bank lending is expected to grow by just 0.8% in 2024, up from 1.2% in 2023 and 6.1% in 2022. Growth is expected to accelerate next year, increasing by 3.6% in 2025 and 5.1% in 2026.
Consumer credit is projected to rise from 1.0% in 2023 to 1.6% in 2024, 4.5% in 2025, and 5.6% in 2026. This year, the Paris Olympics provided a boost.
Growth in corporate loans is also expected to rise from 1.4% in 2023 to 2.0% in 2024, 3.2% in 2025 and 4.9% in 2026.
Spain – fourth and final year of loan reduction
Spain is currently the fastest growing economy among the world’s largest economies, with GDP growth expected to reach 2.8% this year. This relatively strong growth is primarily associated with a service-based economy, relative low dependence on energy-intensive industries, and continued recovery in the tourism sector.
However, in terms of total bank lending, the EY European Bank Lending Economic Forecast predicts that the market will contract for the fourth year in a row, but to a lesser extent (-0.9% this year compared to 3.4% in 2023). ). Among lending categories, only consumer credit is expected to report an increase of 0.7% in 2024, followed by 2.0% in 2025 and 2.1% in 2026.
Corporate lending is expected to contract -0.7% this year (also the fourth consecutive year), grow by 2.2% in 2025 and 1.5% in 2026.
Regarding mortgages, the EY European Bank Lending Economic Forecast predicts a contraction of -1.7% this year, mainly due to the structure of Spanish mortgages. The majority of mortgages in Spain are variable rate contracts, which means the housing market will be exposed to interest rate increases sooner than in many other euro area countries. Mortgage growth is expected to pick up at 1.9% from 2025.
Italy – low growth in 2023
Italy, typically a low-growth economy, is expected to see GDP growth of 0.8% this year, reaching 1.1% in 2025, and inflation averaging 1% by 2024.
In terms of overall bank lending, the forecast calls for a second year of contraction (-1.7% in 2024), followed by a rise to 2.4% in 2025 and 3.1% in 2026.
Mortgage lending is expected to contract by -0.9% this year from -0.5% in 2023, but is expected to increase by 1.7% in 2025 and 3.0% in 2026.
Consumer credit is expected to slow to 3.5% this year from 5.4% in 2023, while business lending will contract for the fourth consecutive year (down 3.4% in 2024) to 2.4% in 2025 and 2026. Growth is expected to return to 2.7% in 2020. .
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About EY European Bank Lending Economic Forecast
The EY European Bank Lending Economic Forecast is based on data from the European Banking Authority and the central banks of Germany, France, Spain and Italy, which account for more than three-quarters of the euro area by GDP.
