ECB Supervision will step up the way banks manage credit risk (NPL) and diversify funding. This was announced by the supervisory authority itself, presenting the priorities for 2023, the year in which the euro area will probably suffer a recession in the face of the jump in financing costs.
The warning of the ECB Supervision was reported among others by the Reuters news agency, which recalled how the Eurozone is facing the double challenge of high inflation and a sharp economic slowdown, mainly due to the war in Ukraine, and its consequences: consequences that have forced the Governing Council of the ECB to tighten the conditions for accessing loans with repeated rate hikes.
The ECB, which supervises more than 100 European banks, has stressed that it will pay more attention to banks that are exposed to the most vulnerable sectors, such as energy and energy trading, but also to those active in the residential mortgage market and in the commercial real estate market.
“Higher interest rates and the outlook for weak growth or perhaps a recession could challenge the debt-service ability of borrowers going forward,” reads the ECB report, which therefore refers to the risk of NPLs, non-performing loans.
In particular, a recent supervision carried out by the supervision of the ECB has identified gaps in the risk control mechanisms of banks, in particular in those which monitor loans, and which identify debtors in situations of stress and therefore the need for provisions.
And “this makes banks vulnerable to a sharp correction in some real estate markets, especially in the residential real estate segment, given the price dynamics observed in recent years”.