The invasion of Ukraine by Russia contributes to the deterioration of the global macroeconomic environment, accentuating pre-existing inflationary pressures, and diminishing growth prospects, which however remain positive in the central scenario of the forecasts. The appreciation of market prices of raw materials and especially of energy constitutes the main channel of transmission both in terms of growth and inflation. In addition to the effects of the war in Ukraine, there are uncertainties related to the Chinese economy, in a context where supply difficulties throughout the production chain persist since the health crisis.
In this context of high inflation, the increase in interest rates in the euro zone and in the rest of the world, under the impetus of the normalization of monetary policies, constitutes the major influencing factor for the system French finance in the first half of the world. 2022. It is especially in view of this evolution of interest rates, and their prospects, that we have reviewed the vulnerabilities for the assessment of the risks of the French financial system.
The situation of French banks and insurers continues to be characterized by a high level of solvency and liquidity, which allows the former to absorb without difficulty the economic consequences of the war linked to a deterioration in the credit quality of some of his exhibitions. These are essentially exposures to non-financial companies that are more sensitive to rising commodity prices and inflation. The first direct effects of the geopolitical shock on the French financial system were limited due to modest direct exposures to Russia and Ukraine.
Normalization, and therefore an orderly increase in interest rates, should increase the net interest margin of French banking institutions. In the transition phase, however, it could have a negative impact on their portfolios valued at fair value. For insurers, the increase in interest rates improves the return on their future investments, but could introduce an increased risk of redemptions by investors on life insurance investments, to benefit from the higher rates of return. This increased waiver risk has not yet materialized and the insurers’ liquidity position is strong enough to deal with it.
The increase in interest rates comes in a context where the consolidated gross debt of French non-financial companies (NFC) as a percentage of GDP, although decreasing from mid-2021, remains relatively high compared to European and international comparisons. . While the market financing rates for French companies are on trend, with a more marked increase in yields for companies with the lowest ratings, the volumes of issues on the primary bond market do not indicate difficulties particularly in access to market financing, apart from a slowdown in issues on the market. these speculative-grade companies. Faced with a further increase in rates, the French NFCs, due to the maturity profile of their debt spread over time, and the very majority share of fixed rates, should prove resilient.
The public deficit must follow a downward trajectory for 2022 and 2023, the extent of which will also be limited by the new budget measures, especially related to the amortization of the consequences of the war in Ukraine. Under the effect of the increase in sovereign yields, the burden of debt should increase gradually for France and all the countries of the euro zone, with a more marked increase, however, for some sovereign debts in the euro zone. This risk of fragmentation is the subject of particular vigilance by the Governing Council of the Eurosystem and will be limited by the mobilization of tools aimed at ensuring the adequate transmission of monetary policy.
Families considered in general still benefit from a favorable financial savings situation. Short-term vulnerabilities for the family sector are contained in this stage. Indeed, the risks induced by a rise in interest rates for the solvency of indebted households are very small, to the extent that mortgage loans are almost all granted at a fixed rate in France. In addition, access to credit remains favorable. Despite the normalization of reference market rates, mortgage rates remain, at this stage, historically low and the production of loans still particularly high, in a context of significant improvement in the conditions for the agreement of l ‘mortgage thanks to the decisions of the HCSF.
The geopolitical context also requires increased vigilance regarding the risk of cyberattacks of systemic importance. A thematic chapter is dedicated to cyber risk with an overview of the threat, its potentially systemic dimension, and finally an overview of the responses, regulatory and others.
A second thematic chapter is dedicated to commodity markets, given their central place in the developments in the last six months. This chapter describes the mechanisms behind price increases by type of commodity, highlights the role of financial derivatives in these markets and the importance of financial links between the different types of participants in these markets. derivatives. The financial stability problems related to the operation of these markets, in particular due to the liquidity tensions observed in March 2022 in connection with the margins, are significant and deserve adequate responses, including regulatory ones, to protect against the new shock to come. In this sense, the current trends in the prices of energy products shed a harsh light on the macro-financial risks associated with the transition to a carbon neutral economy. It is expected that the transition will be accompanied by an increase in the price of fossil fuels (at least a doubling, according to the scenarios of the Network of central banks and supervisors for the greening of the financial sector (NGFS); this increase should be doubled from the tensions on the availability and/or price of the raw material essential to the transition (cf. minerals, etc.) The increase in the prices of the raw material (and therefore inflation) would be even greater and quite close to the evolutions. of the last semester, if the transition was to be delayed and therefore disorder. These last aspects associated with the energy transition are addressed in the last part of the cross-sectional analysis dedicated to climate challenges of current developments.