Europe's Banks Face 'Direct Hit' To Profits From House Price Slide

• Europe's banks risk a significant hit to their profits if house prices across the region begin to slide, regulators and rating agencies have warned.
• While banks' robust balance sheets mean declining house prices are unlikely to pose a systemic risk, the scale of lenders' exposure to the property sector means they could face a hit to earnings, S&P Global Ratings said on Tuesday.
• Home loans typically account for between 30% and 50% of European banks' total customer loans, the rating agency said, adding more cash would likely have to be set aside by lenders for potential defaults as economic conditions worsen.
• “Rising credit risk in mortgage portfolios will lead to a commensurate rise in bank provisioning [for defaults], and a direct hit to their earnings prospects," the agency said.
• S&P's remarks echo concerns raised last week by the European Banking Authority (EBA). The regulator said European Union banks have reported more than 4.1 trillion euros ($4.3 trillion) of loans and advances collateralised by residential property, roughly a third of all loans to households and non-financial firms.

(Source: Reuters)