Enria (ECB) judges the banks still too optimistic in the face of the economic reality

FRANKFURT, Dec 1 (Reuters) – Eurozone banks are facing a sharp deterioration in asset quality, but many are still operating on overly favorable assumptions, so supervisors will need to enforce more “conservatism,” Andrea Enria said. head of sector supervision at the European Central Bank (ECB), said Thursday.

“A number of banks appear to be using relatively lenient macroeconomic assumptions in their adverse scenarios,” Andrea Enria told the European Parliament’s economic affairs committee.

He added that supervisors will scrutinize banks’ capital management to ensure an “adequate level of prudence”.

“Non-performing loans in the consumer credit segment (..) are on the rise,” he said.

Rapidly rising interest rates highlight vulnerabilities in residential and commercial real estate markets, as well as consumer and leveraged loans, Andrea Enria said.

Banks’ exposure to energy-intensive corporate credit will be subject to supervisory scrutiny, although signs of strain have so far been limited.

Energy market volatility has added financial stress to energy traders and suppliers, so regulators have temporarily eased collateral requirements to avoid a repeat of the early autumn liquidity crisis.

Andrea Enria added that the ECB would soon publish the results of its investigation into links between banks and the rest of the financial sector following a series of crises, such as the collapse of hedge fund Archegos Capital Management last year and tensions in the British bond market. (Balazs Koranyi, French version Laetitia Volga, ed.)