Warning for the new risks faced by European banks addressed the head of her Supervisory Arm European Central Bank (SSM – Single Supervisory Mechanism) Claudia Buch.

As she stated in an interview with the Cyprus News Agency, banks, in addition to the risk of high interest rates, are now faced with “new risks”, such as geopolitical crises, climate change and cyber security.

The head of the SSM acknowledged that the banks are now profitable “because we have higher interest rates and this is good for the profits of the banks”.

From July 2022 the ECB entered a tight monetary policy cycle aimed at curbing inflation, raising its key interest rates by 450 basis points.

However, when asked about the challenges with which they are faced commercial banks, Ms. Buch said “we have yet to see the full impact of higher interest rates on banks’ balance sheets.” “There is more pass-through, more impact of higher interest rates on deposit rates and that will have a negative impact on profitability,” he added.

He also noted that it may also be difficult for banks to roll them over higher interest rates to their corporate clients because it is known that in many sectors the demand for new loans is weak.

“Consequently”, he continued, “it is something that we definitely have to monitor, what will happen to the future profitability of the banks and of course there is also the issue of risks, emerging risks, geopolitical risks, climate risks. These are the focus of European supervisors and we are working closely with the banks to make sure they are vigilant and do the right forward risk assessment but for these new risks.”

When asked, the head of the SSM refrained from commenting on the ongoing acquisition of Hellenic Bank by the Greek Eurobanksaying as a general comment that the supervisors, namely the SSM together with the Central Bank of Cyprus, are looking at the precautionary implications.

It is recalled that Eurobank has acquired 55.3% of the share capital of Hellenic Bank and after the supervisory approvals and according to the law, Eurobank is expected to submit a public offer for the acquisition of the remaining share capital.

Ms. Buch refrained from commenting on the substance of the ongoing takeover of Hellenic Bank by the Greek Eurobank, while clearly implying that there will be periodic fines in banks that do not meet the expectations of the Single Supervisory Mechanism in relation to the risks related to climate change.

“I would like to say that the situation for him Cypriot banking sector they are similar to many European banks. The situation is good, the banks are well capitalized,” he said.

Asked about the broader outlook for the European banking sector and whether there is an increase in NPLs, Ms. Buch said that so far there has been a small increase, but it has not had a big impact, pointing out that the inflow of new NPLs takes time amid a slowing economy.

“It takes time when we have a slowdown in the real economy, it takes time for NLDs to manifest, and that’s why we’re pushing for a proper assessment of future risk,” he said. In relation to the risks associated with cyber security, Ms Buch said the SSM was working with banks to ensure they were sufficiently resilient, saying there was evidence that the inclusion of cyber attack incidents was increasing. As he said, the ECB will publish the results of the resistance test against cyberattacks in the summer.