By Gergely Szakacs
BUDAPEST (Reuters) – Turmoil in Europe’s automobile sector may hit the central European economic system and damage banks’ asset high quality, S&P World mentioned on Tuesday, though it added that lenders had been sturdy sufficient to face up to stress of their automotive portfolios.
Automakers throughout Europe have introduced plant closures and massive layoffs as they battle with weak demand, excessive prices, competitors from China and a slower-than-expected transition to electrical automobiles.
The sector is a mainstay of central Europe’s financial development, accounting for five% to 10% of the area’s gross home product and 5% of its employment, in keeping with S&P.
“Whereas direct credit score publicity of CEE banks to the automotive sector is comparatively low, at about 3%-5% of whole company loans, a major downturn may impair the area’s economic system and banks’ asset high quality,” it mentioned.
Though main carmakers have diversified their funding away from financial institution loans to capital markets, S&P mentioned shocks within the business may nonetheless result in vital knock-on results.
The specter of U.S. tariffs on European automobile imports, tighter emissions laws within the European Union from 2025 and intense competitors from Chinese language electrical carmakers may pose further challenges, S&P mentioned.
“Whereas additional stress within the automotive business may result in further credit score losses – primarily due to potential spillovers to suppliers – we consider CEE banks’ earnings and capital ranges are sufficiently sturdy to soak up the monetary hit,” it mentioned.
It added that disruptions to international commerce and the shift to electrical automobiles may create alternatives for some nations, similar to Hungary or Serbia, with giant Chinese language banks actively monitoring investments and alternatives within the area.
Beneath Prime Minister Viktor Orban, Hungary has develop into an necessary commerce and funding accomplice for China, in distinction with another EU nations which are contemplating changing into much less depending on the world’s second-largest economic system.
“ICBC arrange a financial institution in Austria in 2019 and from there they’re working throughout CEE, like different Chinese language banks with subsidiaries within the area,” S&P analyst Cihan Duran mentioned, additionally citing Financial institution of China and China Building Financial institution as examples.
“There’s huge curiosity in Hungary as one of many largest markets the place they attempt to accomplice up with Chinese language corporations in Hungary, but additionally with Hungarian corporations having partnerships with Chinese language investments and funds.”
(Reporting by Gergely Szakacs; Enhancing by Edwina Gibbs)