European banks feel the squeeze as rates fall, economy falters
STOXX 600 up 0.1%
Luxury among top fallers
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EUROPEAN BANKS FEEL THE SQUEEZE AS ECONOMY FALTERS
European banks face an increasingly difficult environment as macroeconomic headwinds gather strength, while interest rates could fall faster than expected, Morgan Stanley analysts say.
After benefiting from a period of high interest rates that bolstered their net interest income, banks now face a slowdown in loan demand, particularly in retail and corporate sectors.
The pressure on the European Central Bank to lower rates again this month is growing, as data points to a slowing economy. A number of big banks have changed their calls in the past few days to include an October cut from the central bank.
This could stifle loan volumes and impose additional strain on profitability in the coming months, Morgan Stanley says.
Concerns over asset quality is also rising. Increasing debt burdens render European banks more vulnerable to higher levels of non-performing loans.
Morgan Stanley warns this could impact earnings, particularly for lenders with a lot of exposure to small and medium-sized enterprises, which may struggle more in a weaker economy.
A sustained rise in default rates could further erode banks' financial health and threaten their overall stability.
Though many banks remain committed to returning capital to shareholders through dividends and buybacks, Morgan Stanley cautions that this commitment could be at risk from lower earnings.
Geopolitical uncertainty stemming from the ongoing conflict in Ukraine and energy market disruptions adds to the sector's difficulties.
(Jesus Calero)
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EARLIER ON LIVE MARKETS:
ITALY’S FISCAL PLAN IS DOABLE, BUT ONLY UNTIL 2027 - CITI CLICK HERE
LUXURY DOWN AGAIN, AUTOS STEADY AS Q4 KICKS OFF CLICK HERE
EUROPE BEFORE THE BELL: FUTURES STEADY, M&A ON THE RADAR CLICK HERE
MILDER INFLATION SEEN SETTING UP RATE CUTS CLICK HERE
EU open https://tmsnrt.rs/3ztcFXe
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