FRANKFURT, Feb 8 (Reuters) – European Central Financial institution supervisors will zero in on dangerous loans this 12 months after discovering that some euro zone banks had set too little cash apart for them or have been gradual in recognising the issue, the ECB stated on Wednesday.
Presenting its annual assessment of the sector, the ECB stated euro zone banks usually had extra capital than required, and a revenue enhance from rising rates of interest had offset the financial harm from the battle in Ukraine.
Nevertheless it warned this will likely not final.
“Whereas rising rates of interest are boosting banks’ profitability proper now, they might additionally have an effect on the flexibility of consumers throughout quite a few portfolios and enterprise strains to pay again their money owed,” the ECB’s high supervisor Andrea Enria stated as he unveiled the outcomes.
The ECB has already demanded extra capital from 24 banks that “fell wanting protection expectations associated to non‑performing loans”, inviting them to shut that hole this 12 months.
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Extra usually, the ECB discovered “persisting danger management deficiencies”, significantly in how banks classify loans which can be susceptible to going unpaid.
Earlier on Wednesday, France’s Societe Generale (SOGN.PA) stated it had raised its provisions for souring loans within the final quarter, leading to a 35% lower in revenue from the identical interval a 12 months earlier.
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Enria added supervisors had discovered a few of the fashions utilized by banks to quantify danger on their stability sheet have been falling wanting worldwide guidelines or the ECB’s personal necessities, triggering calls for to carry extra capital or shed property.
However he cautioned there was no “generalised dissatisfaction” with these so-called inner fashions, however fairly points with some particular person banks.
Germany’s Deutsche Financial institution (DBKGn.DE) has delayed a choice on its share buyback due to a doable hit from a assessment of inner fashions whereas Italy’s Intesa Sanpaolo (ISP.MI) has offloaded property for a similar purpose.
Enria additionally emphasised governance as an space the place the ECB will take motion this 12 months as a result of many financial institution board members lack the required IT expertise and independence.
“The absence of a wholesome problem tradition and the presence of weak decision-making procedures additional hamper efficient governance and strategic steering,” Enria stated.
General, the ECB set its personal capital requirement, often known as Pillar 2, for banks at 1.1% of their dangerous property, unchanged from final 12 months.
Just one financial institution was under the ECB’s requirement and its so referred to as capital “steering”, which isn’t binding. There have been six final 12 months.
Reporting By Francesco Canepa; Enhancing by Kevin Liffey and Christina Fincher
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