Saturday, 15 March 2025
European banks are entering 2025 with a stable outlook, as 75% of rating outlooks are currently stable and an additional 19% are positive, according to a recent report by S&P Global Ratings. This resilience is attributed to favorable credit conditions, which are expected to help banks strengthen their financial positions and pursue expansion opportunities throughout the year.
Key indicators suggest that European banks are well-positioned, with expectations of solid profitability, robust capitalization, and ample liquidity. Priorities for the sector include competing for renewed loan growth, enhancing recurring fee income, and maintaining cost discipline. The capacity for capital distribution remains strong, reflecting the overall health of the industry.
However, the report cautions that geopolitical risks in Europe remain elevated. Potential shifts in trade and fiscal policies could pose challenges to the economic outlook and financial market conditions. Banks with weaker franchises or vulnerable business models may be particularly susceptible to any abrupt economic changes or macro-financial shocks.
With increased confidence in their financial standing and benefiting from positive market repricing, some European banks are setting more ambitious goals. Strategies such as diversifying product lines, pursuing inorganic growth, and forming partnerships are gaining traction. Conversely, banks with fewer resources may find it increasingly difficult to remain competitive in this evolving landscape.
Economic competitiveness has become a focal point on policy agendas. Supervisors are closely monitoring geopolitical risks, liquidity, operational resilience, and environmental factors. While a regulatory rollback is unlikely, there may be opportunities for banks advocating for reduced bureaucracy to find support among certain policymakers.
Recent assessments of the Banking Industry Country Risk Assessment (BICRA) indicate a predominantly stable environment, with positive trends mainly observed in Southern European banking systems. Notably, Greece, Cyprus, Iceland, Ireland, Italy, Portugal, and Spain have experienced positive adjustments in their economic and industry risk scores. In contrast, Hungary and Israel have faced negative revisions, highlighting the varied risk landscape across the region.
The report also notes a meaningful net positive bias in European bank ratings, driven largely by institutions rated in the ‘BB’ and ‘BBB’ categories. Southern European banks account for the majority of positive outlooks, while specific instances of asset deterioration contribute to negative outlooks.
In summary, European banks are anticipated to maintain stability and pursue growth in 2025, supported by favorable credit conditions and strategic initiatives. Nonetheless, they must remain vigilant to geopolitical uncertainties and potential economic shifts that could impact their operations and financial health.
Source: S&P Global
S&P Global Download: The Top Trends Shaping European Bank Ratings In 2025
