Gergely Szakacs
BUDAPEST (Reuters) – Turmoil in Europe’s auto sector could hit the central European economy and hurt banks’ asset quality, S&P Global said on Tuesday, although it added that lenders were strong enough to withstand stress in their auto portfolios.
Automakers across Europe have announced factory closures and large layoffs as they grapple with weak demand, high costs, competition from China and a slower-than-expected shift to electric vehicles.
This sector is the mainstay of economic growth in Central Europe, accounting for 5% to 10% of the region’s gross domestic product and 5% of its employment, according to S&P.
“Although the direct credit exposure of CEE banks to the automotive sector is relatively low, at around 3%-5% of total corporate loans, a significant decline could damage the region’s economy and the quality of banks’ assets,” it said.
Although major automakers have diversified their financing from bank loans to capital markets, S&P says industry shocks could still lead to significant knock-on effects.
The threat of US tariffs on European car imports, tougher emissions regulations in the European Union from 2025 and intense 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 – primarily due to potential spillovers to suppliers – we believe CEE banks’ earnings and capital levels are strong enough to absorb the financial shock,” it said.
It added that disruptions in global trade and the shift to electric cars could create opportunities for some countries, such as Hungary or Serbia, with major Chinese banks actively following investments and opportunities in the region.
Under Prime Minister Viktor Orbán, Hungary has become an important trade and investment partner for China, unlike some other EU countries that are considering becoming less dependent on the world’s second-largest economy.
“ICBC established a bank in Austria in 2019 and they operate across CEE from there, as do other Chinese banks with branches in the region,” said S&P analyst Cihan Duran, also citing Bank of China and China Construction Bank ( OTC: ) as examples.
“There is great interest in Hungary as one of the largest markets where they are trying to establish partnerships with Chinese companies in Hungary, but also with Hungarian companies that have partnerships with Chinese investments and funds.”
