Bank lending growth returns as cost of risk climbs

Bank lending is growing again after two subdued years, but the recovery is arriving with a familiar companion: a higher charge for credit losses. Lenders reported faster loan-book expansion in their latest updates, concentrated in working-capital facilities for large corporates and secured lending to households.

The improvement in volumes reflects receding uncertainty over the interest-rate path. When the cost of new funding stops rising, borrowers are more willing to commit to multi-year facilities, and lenders are more willing to price them.

Provisioning keeps pace

The catch is credit quality. Several institutions lifted their cost-of-risk guidance, noting that the loans written during the easy-money period are now seasoning. A deterioration in the stock of restructured facilities is feeding through to impairment charges even as new lending looks healthier.

Volume is back. The question is whether the underwriting discipline of the last two years survives the return of growth.

What to watch

Investors will focus on two numbers in the coming results season: the pace of loan growth and the ratio of non-performing loans. So far the two are moving in opposite directions, and the sector's profitability depends on which one wins.

Deposit franchises remain a source of strength. Cheap, stable funding has kept margins resilient, giving lenders room to absorb higher provisions without cutting shareholder returns aggressively.