European Banks decry rising risk of bad loans

Europe’s major banks, including Deutsche Bank (DBKGn.DE) and Lloyds Banking Group (LLOY.L), on Wednesday pointed to the rising risk of bad loans as the global economy struggles with slow growth and high inflation.

Financial regulators and investors are keeping a close eye on how banks navigate the uncertain economic climate and are looking in particular for any signs of stress in banks’ loan books.

The latest flurry of bank earnings in Europe highlighted broader trends in global banking, where investment banks are under pressure due to a deal drought, while higher interest rates are helping profitability in retail banking.

Lloyds took a higher charge for troubled loans and missed first-half profit expectations as Britain’s economic chills weighed on its finances and upped pressure on management to do more to help savers.

Analysts at JPMorgan said Lloyds’ higher than expected charge for potentially soured loans – up 76% to 662 million pounds ($855 million) – and declining loan volumes would trigger downgrades of Lloyds’ performance for the year.

Lloyd’s shares were down 3% early on Wednesday.

Higher interest rates helped UniCredit (CRDI.MI) strongly beat earnings expectations in the second quarter. While the bank continues to see a significant increase in its cost of risk ahead, it will be less than anticipated.

Reuters/Hauwa Abu