The European Central Bank (ECB) said on Tuesday it had increased capital requirements for 20 banks after finding they had not set aside enough cash to cover unpaid loans – a key concern for regulators at a time of high borrowing costs.
The move was part of the ECB’s push, set to continue next year, to ensure banks set aside enough reserves for a possible rise in defaults following a rise in interest rates and a subsequent slowdown in economic growth.
Unveiling its annual assessment of the euro zone banking sector, the ECB said it had imposed capital surcharges on 20 major banks because of their non-performing loans (NPE) – financial jargon for bad loans.
“In these cases, underfunding was identified compared to the ECB’s coverage expectations, as coverage for risks arising from older NPEs was assessed as insufficient,” the ECB said.
In 2024, the ECB will continue to focus on credit and liquidity risks, the latter brought into the spotlight by some high-profile banking crises outside the eurozone earlier this year, as well as lenders’ compliance with their climate-related requirements.
“It is expected that the higher interest rate environment will increase both the volatility of some sources of funding and banks’ funding costs in the medium term, at a time when significant amounts of central bank money need to be replaced,” the bank said.
The banks added that given the weak economic environment, there are already early signs of deterioration in asset quality, which could increase the stock of non-performing loans.
2023-12-19 08:35:16
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