According to ING, banks in Germany, Greece, Italy and the Netherlands are most exposed in Europe to the effects of the energy crisis through corporate lending. Greek banks are heavily involved in both clean energy and energy-intensive business, while they are among the banks with the smallest capital cushions and therefore face the immediate risk of creating a new wave of bad loans.

In more detail, as the Dutch bank points out, the fundamental principles of European banks are under pressure from the ongoing energy crisis, and the risks from direct and indirect impacts on the energy sector are increasing.

At the end of the second quarter, outstanding loans from European banks to the energy sector reached 322 billion euros, an increase of 18% year-on-year or 50 billion euros, according to the European Banking Authority. Since then, the energy sector’s impact has further increased as the energy crisis has led to banks backing energy companies and providing lines of credit to meet their needs.

ING estimates that European bank lending to the energy sector represents 5.2% of all corporate loans, but only 1.6% of total lending. Although French banks have provided the most loans to the energy sector, around 90 billion euros, their percentage of total loans is still small. The banks with the highest risks in the energy sector in relation to the size of the total corporate portfolio include German (8.2%) and Greek (7.9%), where the share of total loans is also the highest among the EU countries.

The energy crisis has not only a direct impact, but also an indirect impact on banks, emphasizes ING. In addition to companies that operate exclusively in the energy sector, disruptions in energy markets are also expected to severely impact companies that rely heavily on energy for their core business. These include companies in sectors such as mining, quarrying, transportation, storage, agriculture, forestry, fisheries, water and manufacturing, all of which are energy intensive.

EU banks are particularly exposed to businesses in energy-intensive sectors, with risks of €1.7 trillion. euro or up to 27.9% of total corporate loans in the second quarter of 2022. Risks correspond to approximately 8% of all loans. The highest absolute risks are associated with French, Italian and Spanish banks. However, the share of energy-intensive sectors as a percentage of total corporate portfolio and as a percentage of total lending is higher in countries such as Greece (42% and 17% respectively), Italy (39% and 15%) and the Netherlands (41% and 12%) . However, as ING points out, banks’ capital cushions provide protection against higher credit risks. On this front, however, Greek banks face some of the highest risks. While European banks generally have very good capital buffers, banks in Southern Europe have relatively smaller cushions. Energy sector lending as a percentage of total funds is higher in Greece, Germany and Spain as banks have higher risks and lower capital buffers. “This gives some general idea of ​​which banks are most exposed to changes in the credit quality of these risks,” ING emphasizes.