Press release

4 May 2022 London, GB

Rate of bank loan defaults set to rise across the eurozone, while growth in lending slows from the pandemic peak

LONDON, WEDNESDAY 4TH MAY 2022: The number of eurozone businesses and households unable to make repayments on their bank loans is set to rise, according to the first EY European Bank Lending Economic Forecast.

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Désirée Weiss

EY EMEIA External Affairs Manager, Financial Services

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  • Loan losses are forecast to rise from 2.2% in 2021 to a peak of 3.9% in 2023, ahead of 2019’s 3.2% but still modest by historical standards – losses averaged 6% between 2012-2019 
  • Total eurozone bank lending to grow at 3.7% in 2022 and just 2.9% in 2023 – a slowdown from the pandemic peak of 4.3% in 2020 but still above the pre-pandemic (2018-19) average growth rate of 2.8%
  • Business lending growth is forecast to dip in 2023 to 2.3% but will remain stronger than the 1.7% average growth pre-pandemic (2018-19)
  • Mortgage lending is set to retain a steady 4% average growth over the next three years, above the 3.2% 2019 level 
  • Consumer credit forecast to bounce back from a decline of -2.7% in 2020, growing 2.6% in 2022 – although this remains low relative to 2019 growth of 5.6%

The number of eurozone businesses and households unable to make repayments on their bank loans is set to rise, according to the first EY European Bank Lending Economic Forecast. Loan losses are forecast to rise to a five-year high of 3.9% in 2023, although will remain lower than the previous peak of 8.4% seen in 2013 during the eurozone debt crisis.

The rise in defaults sits against a backdrop of slowing lending growth, which is set to decelerate to 2.9% in 2023 as demand for lending post-pandemic is suppressed by rising inflation and the financial impact of the war in Ukraine. 

Growth across total bank lending is expected to bounce back, however, averaging 3.4% over the next three years before reaching 4.0% in 2025 – a level last seen during 2020, when government-backed pandemic loan schemes boosted figures.

Omar Ali, EMEIA Financial Services Leader at EY, comments: “The European banking sector continues to demonstrate resilience in the face of significant and continued challenges. Despite eight years of negative eurozone interest rates and a forecast rise in loan losses, banks in Europe’s major financial markets remain in a position of capital strength and are supporting customers through these uncertain times.

“Although the next couple of years show more subdued lending growth rates than seen during the peak of the pandemic, the economic outlook for the European banking sector is one of cautious optimism. Optimistic because the worst of the economic effects of the COVID-19 pandemic appear to be behind us and recovery is progressing well. Cautious because significant emerging headwinds lie ahead in the form of geopolitical unrest and price pressures. This is another crucial moment in time where financial institutions and policymakers must continue to support one another to navigate the challenges ahead, compete globally, and build increased economic prosperity.”

Loan losses likely to increase, but from historically low levels

Non-performing loans across the eurozone as a share of gross business lending fell to a 14-year low of 2.2% in 2021 (compared to 3.2% in 2019), largely due to continued negative interest rates and government interventions introduced to support household and corporate incomes during the pandemic.

The EY European Bank Lending Forecast predicts that loan losses across the eurozone will rise, growing by 3.4% in 2022 and a further 3.9% in 2023, from an average 2.4% over 2020 and 2021. However, defaults are set to remain modest by historical standards: losses averaged 6% from 2012-2019 and reached 8.4% in 2013 in the aftermath of the eurozone debt crisis. Immediately pre-pandemic, loan losses averaged 3.5% across 2018-2019.

Across the eurozone, pockets of corporate fragility remain particularly high in certain sectors, including leisure and tourism, which were more heavily affected by pandemic lockdown restrictions. While corporate insolvencies overall remain subdued, temporary suspensions around the obligation to file for insolvency means that there is a backlog of unresolved cases, which could see numbers rise over time.

Business’ appetite to borrow weakened by geopolitical uncertainty and large cash holdings

The EY European Bank Lending Economic Forecast predicts growth in net lending to eurozone corporates of 3.6% in 2022, before slowing to 2.3% in 2023. This compares with a 12-year high of 5.3% recorded in the first year of the pandemic – heavily boosted by government financial support – and much lower pre-pandemic growth rates, which averaged 1.7% over 2018 and 2019.

In the short term, business lending growth is forecast to weaken relative to the pandemic peak, following the withdrawal of government and ECB support, pressure on investment appetite due to economic uncertainty as a result of the war in Ukraine, and a heightened focus on improving corporate balance sheets. The €300bn of ‘excess’ cash holdings eurozone firms have accumulated during COVID-19 is also expected to weigh on lending demand.

A further drag on lending growth could come from the end of the ECB’s Targeted Longer-Term Refinancing Operation programme, which has allowed banks to borrow at lower rates.

Nigel Moden, EMEIA Banking and Capital Markets Leader at EY, comments:Bank lending traditionally provides around half the financing needs of eurozone businesses. While corporate lending increased in the first half of 2020, as firms took advantage of government-backed loan schemes, borrowing growth fell through much of 2021. That trend is likely to continue through 2022 as high inflation bites and sentiment is affected by the war in Ukraine, which has led to significant commodity price increases and further sources of supply chain disruption.

“Amid such turbulent economic times, it is remarkable how resilient European banks continue to be, as they retain focus on supporting their customers. The pandemic years continue to present a real-time stress test for the industry, yet the lending figures – while depressed in the very short-term – demonstrate that the sector can expect a bounce back to pre-pandemic levels in the not-too-distant future.” 

Growth in mortgage lending to decrease from 2021’s record pace but remains strong 

Mortgage lending across the eurozone is forecast to grow at an average of 3.9% between 2022 and 2024, down from 4.5% in 2020 and 5.2% in 2021.

Mortgage lending put in a surprisingly robust performance during the pandemic. In 2020, mortgage lending across the region reported its strongest rate since 2007, thanks to ultra-low interest rates, rising house prices, the pandemic-related shift to homeworking, and the ability of some buyers to draw on unplanned savings to help fund deposits.

However, the outlook is less buoyant as house prices continue to increase, interest rates look set to rise and regulatory action is introduced in some eurozone economies to cool heated housing markets.

Nigel Moden comments: “Affordability is increasingly key as mortgage holders have been warned by the ECB that we are months away from interest rate rises. For customers on fixed rate mortgages, although there may be no immediate impact from a rate increase, they need to closely monitor factors like inflation and economic strength between now and the end of their fixed rate period. On the bank side, rising rates will likely result in a slowdown in first-time mortgages and refinance activity, which they will be preparing for.”

Cost of living pressures have mixed implications for consumer credit

The stock of consumer credit across the eurozone fell by 0.4% in 2021, having already fallen the previous year by 2.7%. This compares to pre-pandemic growth of 5.6% in 2019. 

The EY European Bank Lending Economic Forecast predicts that consumer credit will rise 2.6% this year and a further 1.7% in 2023. However, a significant number of households will be able to draw on savings accumulated during the pandemic, which is holding back further demand for unsecured debt.

Nigel Moden comments: “The tighter squeeze on households’ spending power from high inflation will have a mixed impact on the outlook for unsecured lending – weakening it by reducing discretionary consumer spending, but also supporting demand by compelling some households to use credit to maintain consumption. As they did throughout the pandemic years, banks will need to review and reinforce supports for vulnerable customers, many of whom will already be considering unsecured credit options to help pay for growing energy and food bills.”

Omar Ali concludes: “Once again, eurozone households, businesses and banks are being put to the test. The current combination of rising interest rates, surging energy and commodity prices, and significant geopolitical uncertainty is placing enormous pressure on households and businesses, many of which have just recovered from the pandemic. While these factors are set to continue squeezing corporates and consumers in the short-term and dampen appetite for bank lending, banks remain well capitalized and ready to support their customers and the economy through this period of continued volatility.”


Notes to editor

The terms ‘default’ and ‘loan losses’ in this press release are used interchangeably and refer to loans that are either more than 90 days past due, or that are unlikely to be fully repaid.

In addition to the EY European Bank Lending Economic Forecast, a United Kingdom (UK) forecast and press release are available. Detailed bank lending forecasts are also available for France, Germany, Italy and Spain. For a copy of the UK press release and/or to request individual market insight reports, please contact

About the EY European Bank Lending Economic Forecast

The EY European Bank Lending Economic Forecast is based on economic forecasts using data from the European Central Bank, and covers the eurozone, Germany, France, Spain and Italy.

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