Higher Corporate Bankruptcies in Europe but Impact on Banks' Asset Quality Should Remain Manageable for Now

This commentary discusses the rise of corporate bankruptcies in Europe, their causes, and the potential impact on European banks’ asset quality. Bankruptcies in the European Union reached their highest level since 2015 at end-Q2 2023. The number of bankruptcies in Europe has been gradually rising since Q1 2017, but this trend was interrupted amid the Coronavirus Disease (COVID-19) pandemic as most European governments adopted unprecedented measures to support businesses. From the beginning of 2022, the pace of European bankruptcy filings resumed an upward trend, which has continued into 2023. DBRS Morningstar believes this could have a collateral effect on European banks, as a prolonged rise in bankruptcies often drives a cumulative deterioration in asset quality. Whilst the impact should be manageable for most European banking sectors, some countries will likely be more affected given their high exposure to the most vulnerable segments of the economy in this context.