By Gergely Szakacs
BUDAPEST (Reuters) – Turmoil in Europe’s auto sector could hit the Central European economy and hit the quality of banks’ assets, S&P Global said on Tuesday, although it added that lenders were strong enough to cope with the stress in their auto portfolios. resist.
Automakers across Europe have announced factory closures and major layoffs as they grapple with weak demand, high costs, competition from China and a slower-than-expected transition to electric vehicles.
The sector is a mainstay of economic growth in Central Europe and is responsible for 5% to 10% of the region’s gross domestic product and 5% of employment, according to S&P.
“Although the direct credit exposure of Central and Eastern European banks to the automotive sector is relatively low, at around 3%-5% of total corporate loans, a significant downturn would undermine the region’s economy and the quality of its assets banks,” the report said.
Although major automakers have diversified their financing from bank loans to the capital markets, S&P said industry shocks could still lead to significant knock-on effects.
The threat of US tariffs on European car imports, stricter emissions rules in the European Union from 2025 and fierce competition from Chinese electric car makers could pose additional challenges, S&P said.
“While further stress in the automotive industry could lead to additional credit losses – mainly due to potential spillovers to suppliers – we believe that profits and capital levels of banks in Central and Eastern European countries are sufficiently strong to to cushion the financial blow,” the report said.
It added that disruptions to global trade and the shift to electric cars could create opportunities for some countries such as Hungary or Serbia, with major Chinese banks actively monitoring investments and opportunities in the region.
Under Prime Minister Viktor Orban, Hungary has become a key trade and investment partner for China, unlike some other EU countries that are considering reducing their dependence on the world’s second-largest economy.
“ICBC established a bank in Austria in 2019 and from there they operate across Central and Eastern Europe, like other Chinese banks with subsidiaries in the region,” said S&P analyst Cihan Duran, also citing the Bank of China and the China Construction Bank as examples.
“There is great interest in Hungary as one of the biggest markets where they are trying to collaborate with Chinese companies in Hungary, but also with Hungarian companies that have partnerships with Chinese investments and funds.”
(Reporting by Gergely Szakacs; Editing by Edwina Gibbs)