Enria (ECB): Rising interest rates will help banks but war works (updates)

LAST UPDATE 11:57

Eurozone banks will benefit from a gradual increase in interest rates, but market volatility and the impact of the war in Ukraine could prove to be a burden, said Andrea Enria, head of the ECB’s supervisory authority.

“The current environment, however, is characterized by increased volatility and lower stock valuations, as markets expect profitability and the quality of banks’ assets to be affected by adverse macroeconomic developments,” Enria told a committee of the European Parliament.

He added that the ECB plans to ask eurozone banks to take into account a possible downturn in their business planning, and to use this new calculation to approve dividend payment proposals.

The ECB, for its part, continues to forecast stable economic growth for 2022 and 2023, but has said that an escalation of Russia’s war in Ukraine, which could lead to a disruption of gas supplies, could lead to an unfavorable scenario to drag the eurozone into a deep recession next year.

“We will propose to ask the banks to recalculate their capital flow under a more unfavorable scenario, including a possible gas embargo or a recession scenario, and to use it to control their plans as time goes on.” Enria told the European Parliament committee.

While a gradual rise in interest rates, as proposed by the ECB, would benefit banks in general, Enria warned that there was also a risk of a more erratic rate hike, which would then hit customers, especially in the event of high leverage.