FRANKFURT (Reuters) – The European Central Bank (ECB) said on Tuesday it had raised capital requirements for 20 currency bloc banks after finding they had not set aside enough cash to cover loans unfulfilled, a major concern for supervisory authorities in a context of high borrowing costs.
This measure is part of the ECB’s efforts, which are expected to continue next year, to ensure that banks have sufficient provisions to deal with a possible increase in defaults following the massive hike. of its interest rates, which caused a slowdown in economic growth.
Presenting its annual assessment of the eurozone banking sector, the ECB said it had imposed capital “top-ups” on 20 major banks due to their non-performing exposure (NPE), financial jargon for reference to unrecoverable loans.
“In these cases, a shortfall was identified in relation to the ECB’s coverage expectations, as the coverage of risks linked to old non-performing loans was judged to be inadequate,” writes the ECB, without naming the banks concerned.
The ECB says it wants to continue to focus on credit and liquidity risks next year, as well as on banks’ compliance with its climate-related requirements.
“Rising interest rates are expected to increase the volatility of some funding sources and banks’ funding costs in the medium term, just when substantial amounts of central bank funding need to be replaced,” notes the central bank. .
According to the ECB, early signs of deterioration in asset quality are beginning to emerge due to the weak economic environment, which could increase the stock of bad loans.
Banks will be asked to remedy their “weaknesses” in managing climate-related risks, added the ECB, which gives them a deadline until the end of next year.
“To support this objective, ECB banking supervision is ready to use the tools at its disposal (including, if necessary, capital increases, sanctions and valuation reviews),” writes the central bank.
(Report Francesco Canepa, Claude Chendjou, edited by Blandine Hénault)
Copyright © 2023 Thomson Reuters
I have over 8 years of experience working in the news industry. I have worked as a reporter, editor, and now managing editor at 247 News Agency. I am responsible for the day-to-day operations of the news website and overseeing all of the content that is published. I also write a column for the website, covering mostly market news.
