Cost of credit risk expected to remain low in European banks in 2025.
European banks are expected to continue benefiting from low and stable credit risk costs in 2025, according to DBRS.
Cost of credit risk in European banks expected to remain low in 2025.
According to the DBRS rating agency, the cost of credit risk in European banks is expected to remain low and stable throughout this year, benefiting from lower interest rates and improved economic conditions.
In a report released by DBRS and shared by Notícias ao Minuto, it is explained that the cost of credit risk, an indicator of a bank's asset quality, was "exceptionally low" in 2024. For 2025, the forecast is for it to remain "relatively stable", supported by a monetary policy of gradual reduction in interest rates and the ongoing economic recovery.
The agency also emphasizes that, despite the increase in interest rates in recent years, this did not cause a significant degradation in the quality of assets. With the current trend of falling interest rates, no adverse impact on assets is expected, as bank customers, in general, demonstrate good financial stability.
Another factor contributing to maintaining low risk costs is the performance of the European economy. DBRS projects that unemployment will remain at reduced levels and that inflationary pressures will remain controlled.
However, the agency warns that global risks, both geopolitically and commercially, could have negative consequences for the economy in 2025. If this happens, banks may be forced to increase their provisions, which would raise the cost of risk.
The cost of risk measures the relationship between credit impairments, i.e., the amount banks set aside to cover potential losses from loans, and the average balance of loans granted. This indicator is essential for evaluating a bank's financial quality.
In the report, DBRS analyzes several European banks and highlights the Portuguese, especially CGD, as among those who have recorded the greatest reductions in cost of risk since 2023.
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