Morningstar DBRS reports limited European bank exposure to Middle East conflict

On Friday, the international rating agency Morningstar DBRS released an assessment regarding the direct exposure of EU and EEA banks to the ongoing Middle East conflict. According to the report, direct exposure remains limited and small compared to total assets, accounting for approximately 0.5% of the sector's total assets. This exposure is concentrated in a limited number of Gulf countries and a few globally active financial institutions. Borja Barragán, Assistant Vice President of European Financial Institutions Ratings, stated that the risk of significant immediate balance sheet impact is negligible. However, the agency warns that risks are more likely to manifest through indirect macroeconomic channels. These include pressure on domestic corporate borrowers with ties to the region, higher inflation, tighter financial conditions, and slower economic growth. These factors could potentially impact asset quality, offsetting the profit benefits currently derived from higher interest rates.