Credit risk cost expected to remain low in European banks in 2025.

Cost of credit risk in European banks expected to remain low in 2025.

According to the rating agency DBRS, the cost of credit risk in European banks is expected to remain low and stable throughout this year, benefiting from declining interest rates and improving economic conditions.

In a report released by DBRS and shared by Notícias ao Minuto, it is explained that the cost of credit risk, an indicator of a bank's asset quality, was "exceptionally low" in 2024. For 2025, the forecast is that it will remain "relatively stable," supported by a monetary policy of gradually reducing interest rates and by the ongoing economic recovery.

The agency also points out that, despite the increase in interest rates in recent years, this did not cause a significant degradation in asset quality. With the current trend of falling interest rates, no adverse impact on assets is expected, since bank clients, in general, show good financial solidity.

Another factor contributing to maintaining a low risk cost is the performance of the European economy. DBRS projects that unemployment will remain at low levels and that inflationary pressures will continue to be controlled.

However, the agency warns that global risks, both at the geopolitical and commercial levels, may have negative consequences for the economy in 2025. If this happens, banks may be forced to increase their provisions, which would raise the cost of risk.

The cost of risk measures the relationship between credit impairments, that is, the amount that banks reserve to cover possible losses on loans, and the average balance of loans granted. This indicator is essential for evaluating the financial quality of a bank.

In the report, DBRS analyzes several European banks and highlights the Portuguese, especially CGD, as among those that have seen the biggest reductions in cost of risk since 2023.

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