Eurozone banks not facing reality of slowdown: ECB

Euro zone banks have yet to fully face the reality of an economic slowdown, so financial sector supervisors will need to force them to be more conservative in capital management, ECB supervisory chief Andrea Enria said on Thursday. fair (1st).

The euro zone is almost certain to slip into a recession in the coming months as high energy costs hit consumers’ budgets. But banks, enjoying an unusually high profit period, have been criticized for downplaying the likely economic impact.

“Several banks appear to use relatively moderate macroeconomic assumptions in their downside scenarios,” Enria told a European Parliament hearing. “Supervisors will closely scrutinize capital planning and challenge management actions to ensure an adequate level of conservatism.”

Enria said that bad debts in the segment of consumer loans and arrears, both for households and corporate clients, are already on the rise.

The rapid increase in interest rates – mainly due to ECB rate hikes – is also highlighting vulnerabilities in the residential and commercial real estate markets, as well as in consumer finance, Enria said.

Banks’ credit exposures to energy-intensive corporate borrowers will be a particular area of ​​supervisory attention, even if there have been only limited signs of distress so far.

Energy market volatility has increased financial stress for energy traders and producers, so regulators have temporarily eased collateral requirements to avoid a repeat of a liquidity squeeze months ago.

Enria also said the ECB would soon publish the results of its investigation into ties between banks and the rest of the financial sector after a series of crises, such as the collapse of Archegos Capital Management last year and tensions in the government’s bond market. UK government that nearly brought down pension funds in September.