There are two fundamental factors which have affected bank lending. On the one hand, market doubts over the banks’ ability to generate margins against a backdrop of low and even negative interest rates. And on the other, the indirect impact which the current prices of energy and raw materials might have on the entities’ balance sheets.
In this area, and based on a series of hypotheses, Banca March’s analysts point that some global investment houses are estimating potential losses of $27bn for the listed European banks from loans to the energy sector (about 6% of pretax profits, assuming a 3-year maturity).
“This should not be too much of a problem for the banking system’s capitalisation. But if we consider other possible ramifications, such as the financing for companies focused on trading in raw materials, the exposure could be in excess of $200bn. In this case, there could be a significant tail risk for banks’ profits. That said, it is very premature to think there could be any sort of significant risk on this front in the short-term,” say the experts.