Key Takeaways
- European carmakers face weak demand, stiff competition from Chinese manufacturers, and pressure on profitability from the transition to electric vehicles (EVs), challenging their business models.
- Several large EU banks--including Commerzbank, CaixaBank, Erste Group Bank, and UniCredit--have notable corporate exposures to the European automotive sector and its suppliers. That said, we expect banks' earnings will comfortably absorb potential additional credit losses from this sector.
- Potential spillovers from a further deterioration in the car sector pose a downside risk to the asset quality of banks in Germany, Sweden, and Central and Eastern Europe (CEE), where the car industry contributes significantly to GDP and employment.
European automotive original equipment manufacturers (OEMs) and suppliers are facing weak car demand in key markets, intense competition from Chinese manufacturers, insufficient cost competitiveness, and a difficult transition to electric vehicles. What's more, the risk of potential U.S. tariffs on light vehicle imports under the new U.S. administration and stricter CO2 emission regulations for passenger cars and vans in the EU from 2025 will continue to pose challenges to the European automotive sector.
The Car Industry's Struggles Leave Banks Largely Undeterred
We consider that EU banks' potential losses from their exposures to the auto production sector will be manageable. As of December 2023, the sector accounted for €57 billion of the 20 largest EU banks' gross exposure and 1.2% of their total loans to non-financial corporations (NFC)--and about €89 billion and 1.9% if we add the production of rubber products, which are closely associated with the manufacturing of cars. For four banks--Commerzbank AG, CaixaBank S.A., Erste Group Bank AG, and UniCredit SpA--the combined gross exposure was more notable and exceeded 3% of total NFC loan exposures (representing 1.5%-2.5% of total customer loans, see chart 1). The quality of these auto loan portfolios is in line with that of the broader corporate sector, with an average nonperforming loan (NPL) ratio of 4% and a stage 2 ratio of 11% for the 20 banks in our sample.
Chart 1
A few large European banks also run sizable car leasing operations (for example Société Générale, BNP Paribas, and Banco Santander S.A.). A decline in auto sales of established OEMs would typically result in lower leasing origination volumes. Yet it would not necessarily lead to an increase in delinquencies, which would likely depend on the broader macroeconomic situation. What's more, banks run stress scenarios on the residual value of used cars to calibrate the capital that they hold against such unexpected losses.
We forecast that European banks will continue to record solid operating performances over 2025-2026. In our base case, we expect a moderate increase in credit costs due to rising delinquencies and loan restructurings in selected portfolios, such as commercial real estate and small and midsize enterprises. Given the challenges the European auto industry faces, loans to auto suppliers could also generate additional credit costs for banks in 2025.
European suppliers' credit quality is under more pressure than that of OEMs. Even before the repercussions of the COVID-19 pandemic--including supply chain bottlenecks and cost inflation--many suppliers' indebtedness exceeded that of OEMs due to their dependency on Europe and the continued need for high research and development spending to re-align their portfolios toward alternative powertrains.
Table 1 shows the results of our sensitivity analysis. We estimated the additional provisions that the 20 largest banking groups in the EU could face in 2025 if the NPL or stage 2 ratio were to increase (assuming the coverage ratio remains at 50% for NPLs and 5% for stage 2 loans). We found that a further deterioration of banks' auto sector portfolios would reduce our forecast pre-provision income by only 1%-3% in 2025. Of course, this aggregate number masks significant variations across banks, and we will continue to monitor the evolution of each bank's exposure. That said, this analysis demonstrates that potential challenges in the auto industry should be largely manageable for EU banks.
Table 1
The Importance Of The Automotive Sector Varies Across EU Economies
In 2023, the wider automotive ecosystem--including auto production and retail--accounted for 2%-6% of gross value added (GVA) in major EU countries, especially in Germany (see chart 2). In Slovakia and the Czech Republic, the auto sector represents an even larger share of GVA. We estimate that the automotive ecosystem employs at least 2%-5% of the working population in most EU countries, particularly in Germany (see chart 3).
Chart 2
Chart 3
In countries where the auto sector contributes significantly to GDP or employment numbers, the challenges in the industry could impair banks' asset quality. In addition to direct corporate lending exposures to the sector, banks could suffer from potential ripple effects on the broader economy, including job losses and disinvestments, if the stress in the auto sector increases. In their base case, S&P Global Ratings' economists expect a return to near potential growth in Europe in 2025 but note that several policy shifts, including on U.S. tariffs, could derail this forecast. We will therefore continue to monitor the effect of these potential policy shifts on specific sectors, regions, and, ultimately, banks' asset quality.
Related Research
- Industry Credit Outlook 2025: Autos, Jan. 14, 2025
- Banking Brief: CEE Banks Can Stomach Headwinds In The Auto Industry, Jan. 14, 2025
- Economic Outlook Eurozone Q1 2025: Next Year Will Be A Game Changer, Nov. 26, 2024
- European Banks Will Pull Multiple Levers To Protect Operating Performance In 2025-2026, Nov. 25, 2024
This report does not constitute a rating action.
| Primary Credit Analysts: | Nicolas Charnay, Paris +33623748591; nicolas.charnay@spglobal.com |
| Romain Naegelen, Frankfurt +49 6933999274; romain.naegelen@spglobal.com | |
| Lukas Paul, Frankfurt + 49 693 399 9132; lukas.paul@spglobal.com | |
| Secondary Contact: | Cihan Duran, CFA, Frankfurt +49 69 33999 177; cihan.duran@spglobal.com |
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