ECB tells banks to prepare for the worst

The banking sector in the euro zone is solid but the coming recession calls for caution. This is the message delivered on Monday by Andrea Enria, in charge of banking supervision within the European Central Bank (ECB), during a conference in Brussels, reports the Reuters press agency.

Faced with an undoubtedly difficult winter, “We encourage banks to focus on concentrating exposures to sectors that are particularly energy-dependent and vulnerable to energy shocks”, thus underlined the supervisor. However, European banks have accumulated large financial reserves in recent years, well above the minimum required by regulation.

Admittedly, the banks are benefiting from the rise in interest rates, which allows them to generate better intermediation margins, even if the transition phases of a change in cycle are always tricky to manage. But, underlines the central banker, certain institutions are more exposed than others to the rise in rates, such as specialists in real estate financing (commercial and residential) or consumer credit.

The ECB raised its key rates by 125 basis points in two months and is expected to proceed with further increases of 50 basis points each by the end of the year. This constitutes the fastest cycle of monetary tightening since the creation of the euro.

More reserves for banks

“We are asking banks to review their capital forecasts in dark, adverse scenarios, and we will start a dialogue with them in this direction”, said Andrea Enria. For him, financial institutions heavily exposed to real estate financing (commercial and residential) and consumer credit will be affected by the rise in rates. Another risk recently identified: derivatives activities on the energy markets.

Already, in France, the High Council for Financial Stability (HCSF), a body created after the 2008 financial crisis under the authority of the Minister for the Economy, has planned, at its last meeting in September, to look into next December on the “countercyclical buffer”. This compulsory reserve mechanism for banks is supposed to adjust according to the economic cycle, ie upwards during expansion phases and downwards during economic downturns.

According to sources close to the HCSF, this rate remains unchanged at 0.5% but it could be raised to 1% in December for effective implementation a year later, provided however that the economic situation does not deteriorate too much. here there.

However, all these alerts indicate a certain nervousness on the part of supervisors in the face of a probable rise in credit risk, which has been exceptionally low for two years. Hence the repeated calls for caution.

(with Reuters)