BNP Paribas argues that European Union (EU) manufacturing firms enter the 2026 energy shock from Iran with historically low non-performing loan (NPL) ratios, suggesting stronger financial health than in 2022. The bank notes that support measures will likely be more limited due to budget constraints, but highlights potential resilience from defence, public infrastructure and AI-related orders, which could help contain bankruptcies and unemployment.

Manufacturing NPLs low but policy support uncertain

"During her hearing on 18 March 2026 before the Committee on Economic and Monetary Affairs of the European Parliament, Claudia Buch (Chair of the Supervisory Board of the European Central Bank) highlighted the absence of decline in the quality of bank assets and the stability of non-performing loan ratios. These ratios are a good indirect indicator of the financial health of borrowing corporations in the European Union (EU), particularly in the manufacturing sector."

"In most individual European Union countries, the NPL ratio for the manufacturing sector now stands at a historically low level. Furthermore, the highest ratios at the start of the observation period typically recorded the sharpest declines."

"In the majority of cases, NPL ratios were reduced by more than half between Q2 2019 and Q4 2025. In cases where they increased during this latter period, the increases generally remained modest."

"Overall, the decline in the manufacturing sector’s NPL ratio in most European countries tends to indicate improved financial health. The manufacturing sector’s initial ability to withstand the energy shock linked to the 2026 war in Iran is therefore, in theory, greater than it was at the onset of the 2022 war in Ukraine."

"However, orders pertaining to defence, public infrastructure and AI are expected to provide new sources of resilience which, combined with the European manufacturing sector’s initially robust financial health, could help limit the impact of the 2026 energy shock on business bankruptcies and unemployment."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)