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Eurozone banks must take into account the risk of a further decline in property prices when making provisions and plans for their capital, said the Chairman of the Supervisory Board of the European Central Bank (ECB), Andrea Enria, quoted by Reuters, BTA reported.
The European property market is under pressure from the sharpest and longest streak of interest rate hikes by the ECB, now at a record high.
Property prices are already falling in a number of countries, most notably Germany, where the market boomed during the last decade of low interest rates. Enria warned creditors to brace for more trouble.
“The current environment of higher interest rates could put downward pressure on office and residential prices, making it harder for business property owners and households to service their debt,” Enría told the European Parliament.
“Banks should consider these risks in their provisioning and capital planning practices,” he added.
As the eurozone’s leading banking supervisor, the ECB sets capital requirements for banks and is known to disapprove of their plans to pay dividends or embark on share buybacks.
Buoyed by low interest rates and huge cash injections from the ECB, billions of euros have flowed into property over the past decade, particularly in wealthier European countries such as Germany, France and the Netherlands.
The sudden acceleration of inflation over the past two years has forced the ECB to tighten monetary policy, ending the rise in property prices and pushing construction companies into bankruptcy as bank funding dries up, deals freeze and prices fall.
Banks in the eurozone are reducing access to credit, especially mortgage loans, and demand from households and companies is also falling, ECB data shows.
Enria is due to step down as chair of the ECB’s Single Supervisory Mechanism at the end of the year, when he will be replaced by Germany’s Claudia Buch.
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2023-11-11 10:27:00
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