Banks in the eurozone must remain vigilant in an uncertain environment, stated the chair of the supervisory board at the European Central Bank (ECB), warning of signs of problems in the assets of major lenders.
– Clear signs have already emerged that the quality of assets of significant institutions is beginning to deteriorate – said Claudia Buch, according to the text of her speech to be delivered at a meeting at the House of Europe in Brussels.
By the end of 2022, the share of non-performing loans in total bank loans had been almost continuously decreasing, but since 2023 it has slightly increased again, although it remains at a low level, notes Buch. Recently, credit risk supervision has focused on ‘sensitive sectors’ such as the commercial real estate sector, which is experiencing problems due to high financing and construction costs.
– The pattern of bank loans to real estate companies implies that raising financing costs could double the share of loans to loss-making companies to as much as 26 percent – calculated the ECB in a report published at the end of last year.
– The portfolios of commercial real estate in the assets of banks are relatively limited, which means they are unlikely to lead to a systemic crisis on their own, but in the event of stress in the broader market, they could play a significant ‘amplifier’ role – they warned.
Banks today are ‘better capitalized and more resilient than they were 10 years ago when the banking union was established,’ emphasized Buch in the text of her speech, but there is no room for complacency.
– Structural changes in the real economy, new risks, digitalization, and increased competition can pose challenges to the business models of banks – explained the head of the supervisory board of lenders in the eurozone.
– The recent rise in interest rates has benefited banks, increasing their profits, which provides them with an opportunity to enhance resilience by building capital reserves and robust IT infrastructure – emphasized Buch.
Before her appointment as chair of the ECB’s supervisory board in January this year, Buch served as vice president of the German central bank, Bundesbank, recalls the Dpa agency.
