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FRANKFURT, Feb 8 (Reuters) – European Central Financial institution supervisors will zero in on unhealthy loans this yr after discovering that some euro zone banks had set too little cash apart for them or have been sluggish in recognising the issue, the ECB stated on Wednesday.
Presenting its annual evaluation of the sector, the ECB stated euro zone banks usually had extra capital than required, and a revenue enhance from rising rates of interest had offset the financial injury from the conflict in Ukraine.
But it surely warned this may increasingly not final.
“Whereas rising rates of interest are boosting banks’ profitability proper now, they might additionally have an effect on the flexibility of consumers throughout quite a lot of portfolios and enterprise strains to pay again their money owed,” the ECB’s high supervisor Andrea Enria stated as he unveiled the outcomes.
The ECB has already demanded extra capital from 24 banks that “fell wanting protection expectations associated to non‑performing loans”, inviting them to shut that hole this yr.
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Extra usually, the ECB discovered “persisting danger management deficiencies”, notably in how banks classify loans which are prone to going unpaid.
Earlier on Wednesday, France’s Societe Generale (SOGN.PA) stated it had raised its provisions for souring loans within the final quarter, leading to a 35% lower in revenue from the identical interval a yr earlier.
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Enria added supervisors had discovered among the fashions utilized by banks to quantify danger on their stability sheet have been falling wanting worldwide guidelines or the ECB’s personal necessities, triggering calls for to carry extra capital or shed belongings.
However he cautioned there was no “generalised dissatisfaction” with these so-called inside fashions, however quite points with some particular person banks.
Germany’s Deutsche Financial institution (DBKGn.DE) has delayed a call on its share buyback due to a attainable hit from a evaluation of inside fashions whereas Italy’s Intesa Sanpaolo (ISP.MI) has offloaded belongings for a similar cause.
Enria additionally emphasised governance as an space the place the ECB will take motion this yr as a result of many financial institution board members lack the mandatory IT expertise and independence.
“The absence of a wholesome problem tradition and the presence of weak decision-making procedures additional hamper efficient governance and strategic steering,” Enria stated.
General, the ECB set its personal capital requirement, referred to as Pillar 2, for banks at 1.1% of their dangerous belongings, unchanged from final yr.
Just one financial institution was beneath the ECB’s requirement and its so referred to as capital “steering”, which isn’t binding. There have been six final yr.
Reporting By Francesco Canepa; Modifying by Kevin Liffey and Christina Fincher
Our Requirements: The Thomson Reuters Trust Principles.
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