The Chairman of the Supervisory Board of the European Central Bank (ECB), Andrea Enria, presented the ECB’s annual report on banking supervision in Frankfurt, with the return of interest rates that started in July 2022 after years of extremely loose monetary policy in the euro area, making it possible for European financial institutions to focus especially on risk management and strategic control. He said he needed to make adjustments.
Explaining that Eurozone banks are “solid”, Enria emphasized that banks will need to monitor liquidity and financing risks more closely, given the tightening in monetary policy.
“BANKS RISK OF Caught Unacknowledge”
Enria urged financial institutions in the euro area to be vigilant in the face of the uncertain economic situation, saying that if banks do not pay attention to their funding sources, they will run the risk of “being caught off guard” by rising interest rates.
“There is a risk that banks will be caught off guard,” Enria warned.
“An area where we haven’t seen enough progress in risk control at banks,” Enria said, also warned of a potential downside to her banks’ net assets as borrowing costs rise.
In the ECB’s annual report, it was emphasized that if the energy crisis is not resolved, the credit risk in loans given to companies heavily dependent on energy may increase.
The report also stated that the economic slowdown at the end of 2022 was accompanied by a renewed increase in corporate defaults. Therefore, it was emphasized that more attention should be paid to the deterioration in credit quality.