Moody's is decreasing the rating of European banks

The international rating agency Moody's introduced some changes. On Wednesday the predictions for banks in Germany, Italy and other four countries were decreased from "stable" to "negative". The reasons were the weakening of the European economy due to the energy crisis and high inflation.

The rating for the banking sector in the Czech Republic, Hungary, Poland and Slovakia will also be downgraded. Moody's reported that this group includes those which are most exposed to energy price inflation and possible energy rationing.

Louise Wielin from Moody's said that further worsening of operating conditions is expected.

Last week, higher-than-expected earnings were published. Because of this, the economy is collapsing. As a result, some of Europe's biggest banks warned of rising risks.

Wielin said that price increases will affect the creditworthiness of many businesses and households, leading to new problem loans.

Moody's noted that government measures to support the German economy will not fully compensate for the difficulties experienced by companies and consumers.

The report talks about the German economy entering a recession.

Moody's also gave reasons for the downgrade of Italy. They are stagflation risks and expectations that the economy will not grow in 2023 after growing by 2.7% in 2022.

The rating agency said that price increases will damage the creditworthiness of small businesses and households, which will lead to the appearance of new problem loans in Italy.