Some US banks are concerned about their exposure to commercial property. However, in Europe, the risk associated with declining asset values is minimal and mostly confined to a few specialised institutions. This is the assessment of fixed income specialist Atlanticomnium SA. Given the robust health of European banks, Romain Miginiac, Fund Manager and Head of Research at Atlanticomnium, finds any talk of contagion greatly exaggerated.

“Europe’s banks are consistently posting strong results, a testament to years of bolstering balance sheets, regulatory modifications, and the conclusion of the period of extremely low interest rates,” says Miginiac.

Despite headwinds such as deposit repricing, cost inflation or higher loan loss provisions, he expects the European banking sector to deliver healthy profits over the coming years, “with 10-12% RoE consensus expectations over the full-year FY24-25, compared to approximately 5% over FY18-22,” according to Miginiac.

“From a bondholders’ perspective, earnings momentum is marginal for European banks’ credit profiles. The focus should remain on banks’ earnings buffer – the ability to absorb credit and other losses (such as market risk and litigation). With solid double-digit RoE expected over the coming years, European banks can absorb sizeable levels of losses before excess capital is eroded,” he opines.

Read the full insight here.