French Banks Account for Nearly Half of Europe’s Direct Middle East Exposure, EBA Reports

The European Banking Authority reported that French banks held approximately
c60.8 billion in direct exposures to counterparties in the Middle East at the end of last year, representing almost half of the
c132.1 billion total across 29 European countries. While the EBA said this amount is small relative to total banking assets, it cautioned that the Iran war and rising energy prices could create secondary economic impacts.

Key Points

French banks held c60.8 billion in direct exposures to Middle East counterparties at the end of last year, nearly half of the c132.1 billion total across 29 European countries.
The EBA says the total direct exposure represents less than 0.5% of overall banking assets in the sample, indicating limited direct financial links by scale.
Energy markets and supply chains are already affected by the Iran war, and the EBA warned that further escalation could produce second-round effects that influence the banking sector and the broader economy.

The European Banking Authority (EBA) said on Monday in Paris that French banks carried around c60.8 billion ($69.9 billion) of direct exposure to counterparties based in the Middle East at the close of last year. That sum amounts to nearly half of the c132.1 billion in total direct exposures recorded for banks across 29 European countries.

According to the EBA, the aggregate figure of c132.1 billion represents under 0.5% of total banking assets for the jurisdictions covered. The regulator therefore characterized direct ties to the Middle East as limited in scale for the European banking sector overall.

Despite the limited scale, the EBA highlighted the broader economic volatility tied to the conflict in Iran. The regulator noted that the Iran war has sent shock waves through the global economy as energy prices have surged and supply chains have been disrupted. The statement on Monday added that "the escalation of tensions could generate second-round effects."

The EBA's breakdown of exposures shows that loans and advances to banks and other financial corporations made up the largest portion of the Middle East-linked exposures for both French institutions and their peers in other European countries. The dataset covers counterparties located in the Gulf Cooperation Council as well as in Iran, Iraq, Israel, Jordan, and Lebanon.

Within the Middle East cohort, the United Arab Emirates accounted for the largest share of the reported exposures, while exposures to Iran were described as minimal in the EBA data.

Context and implications

The EBA's figures point to a concentration of direct Middle East exposure in French banks, even as the regulator judges the overall level to be small relative to total assets across the 29-country sample. The combination of concentrated exposure, rising energy costs and disrupted supply chains underlines potential channels through which geopolitical escalation could feed back into the European financial system and the wider economy.

Where the data are constrained, the EBA report confines its commentary to the recorded exposures and the possible macroeconomic consequences of escalating tensions, without assigning probabilities or projecting specific outcomes.

Risks

Geopolitical escalation - further tensions related to the Iran war could amplify energy price volatility and supply chain disruption, affecting energy and trade sectors as well as financial markets.
Concentration risk - with French banks holding almost half of the reported direct exposure to the Middle East, shocks in that region could have disproportionate implications for the French banking sector and related financial institutions.
Contagion through financial counterparties - loans and advances to banks and other financial corporations constitute the largest share of the exposures, posing risks to interbank relationships and the broader financial system if conditions deteriorate.

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