Ernst & Young: Non-performing loans will grow, lending be constrained

Non-performing loans (NPL) in the euro area will increase, bank lending will record a very slight growth in individual segments, while in the others it will decrease for the first time in years. These are the forecasts of Ernst & Young consulting company in its yearly economic report for the euro area countries. Government support programs, implemented during COVID-19 pandemic, will limit the rise of corporate NPL, at least in the short term. According to the forecast loan losses are likely to rise, but remain below global financial crisis levels. 

A weaker eurozone economy is likely to drive a rise in impairments across all forms of bank lending, but E&Y does not expect significant increases – certainly not at levels recorded during the last Europe debt crisis. Loan losses across the eurozone are forecast to rise 2.6% this year, from 2.2% in 2021, and slowly rise over the subsequent years (see the chart). For context – loan losses peaked in 2013, when it was above 8%. 

Tightening of the conditions, post-Global Financial Crisis regulation and lending criteria should mean mortgage borrowers are better able to deal with higher rates. The savings, which housholds built up during the pandemic are likely to provide a cushion of support against falling incomes and rising job losses.


Omar Ali from the E & Y team commented that the European households, businesses and banks were well on the road to recovery from the worst of the pandemic when war in Ukraine began. After this markets were faced with a new wave of economic challenges. Аs long as the war in Ukraine does not escalate, the downturn is expected to be short-lived, with a bounce back forecast in 2024 and 2025, noted Ali. 

According to Eurostat in 2021 the Europeans spent 25% of their monthly expenses on home maintenance – mortgage or rent, heating, water supply. Data for 2022 have not yet been published, but most likely the shares of home spend will be higher due to the rising costs of energy resources, as well as rising interest rates and rents.

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