Central European banks can withstand auto sector turmoil, says S&P

By Gergely Szakaks

BUDAPEST (Reuters) – Turmoil in Europe’s auto sector could hurt central Europe’s economy and hurt banks’ asset quality, S&P Global said on Tuesday, although lenders said they were strong enough to withstand stress in their automotive portfolios.

Automakers across Europe have announced plant closings and large layoffs as they struggle to make the shift to electric vehicles from weak demand, higher costs, competition from China and a better-than-expected shift.

The sector is the mainstay of Central Europe’s economic growth, accounting for 5% to 10% of the region’s GDP and 5% of its employment, according to S&P.

“While CEE banks’ direct credit exposure to the automotive sector is relatively low at around 3%-5% of total corporate lending, a sharp downturn could hurt the region’s economy and the banks’ asset quality,” he said.

Although major carmakers have diverted their money from bank loans to capital markets, S&P said shocks in the industry could still have significant knock-on effects.

S&P said the threat of U.S. tariffs, stricter EU emissions rules from 2025, and increased competition from Chinese electric car makers could create concerns over Europe.

“While further stress in the automotive industry may lead to further credit losses – mainly to suppliers – we believe CEE banks’ income and capital levels are strong enough to weather the financial crisis,” he said.

He added that disruptions to international trade and the shift to electric cars could create opportunities for some countries, such as Hungary or Serbia, for large Chinese banks to actively pursue investments and opportunities in the region.

Under Prime Minister Viktor Orbán, Hungary has become an important trade and investment partner for China, in contrast to some EU countries’ perceived dependence on the world’s second-largest economy.

“ICBC will set up a bank in Austria in 2019 and then operate across CEE, like other Chinese banks with branches in the region,” said S&P analyst Sihan Duran, citing Bank of China and China Construction Bank as examples.

“As one of the largest Hungarian companies with Chinese investments and funds in cooperation with Chinese companies in Hungary. There is a great demand in the Hungarian market.”

(Reporting by Gergely Szakacs; Editing by Edwina Gibbs)