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Credit deterioration across Europe's corporate sector

Banks across Europe are bracing themselves for a continued deterioration in their corporate loan portfolios as Europe's small to mid-size continue to see credit deterioration in the latter half of 2003.

Despite the first semblance of a recovery seen across several national markets, domestic bad debts and loan loss provisions are set to continue rising through 2003 and 2004. And while 2002 saw corporate credit deterioration limited to specific sectors - most notably telecommunications and energy - the later months of 2003 will see a general deterioration across the board in Europe's corporate sector.

Europe's banks, however, are in a secure position, at least according to Arnaud de Toytot, part of S&Ps European financial institutions ratings group: "This scenario of a moderate deterioration in the quality of domestic corporate loan books is already largely factored into our existing ratings on European banks and is counterbalanced by the banks' generally sound earnings and capital strength."

Regional trends within Europe have also developed. While German, Portuguese and Dutch banks face the prospect of continuing weak economies, banks in Spain, Ireland and the UK are expected to fare better with their corporate loan books on the back of stronger economies.

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