The European Central Bank will increase scrutiny of how banks manage credit risk and diversify funding, the ECB said on Monday (12), as it outlined priorities for 2023 as the euro zone heads towards a possible recession and faces rising borrowing costs.
The 19-nation currency bloc faces the dual impact of skyrocketing inflation and a sharp economic slowdown, largely a consequence of Russia’s war in Ukraine, which has forced the ECB to tighten borrowing conditions even as it exacerbates economic woes.
The ECB, which oversees more than 100 major banks in Europe, said it would now take a closer look at lenders exposed to the most vulnerable sectors, including energy, and would also look at residential mortgages and commercial property.
“Higher interest rates and the prospect of slow or possibly recessive growth could challenge borrowers’ debt service capacity going forward,” the ECB said in a statement.
A recent supervisory review also confirmed weaknesses in banks’ risk controls, particularly in monitoring loans, classifying distressed borrowers and provisioning, the ECB said.
“This makes banks vulnerable to a sharp correction in some property markets, especially in the residential property segment, given the price dynamics observed in recent years,” the ECB said.
Source: CNN Brasil
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