Live Markets: European banks feel the squeeze as rates fall, economy falters

Covestro AG

01/10/2024 10:47

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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)
    *****
    
    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

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