ECB urges eurozone banks to strengthen profitability

The European Central Bank (ECB) on Wednesday called on eurozone banks to strengthen their profitability.

Banks in the euro area have made great strides and become more resilient, said Daniele Nouy, Chair of the Supervisory Board of the ECB, at an annual press conference here.

Nouy sees an urgent need for banks to increase their profitability and clean up balance sheet because 2018 offers an "ideal" opportunity.

More than three years after the ECB assumed the responsibility for euro area banking supervision, Nouy said "the construction phase is clearly over. The supervisory framework is now stable and predictable, and this should make life a bit easier for banks."

The Common Equity Tier 1 (CET1) capital ratio of significant institutions in the euro area, which is a capital measure to gauge a bank's resilience in case of an economic downturn, increased by over 270 basis points between the end of 2014 and the third quarter of 2017 when it stood at 14.3 percent.

The profitability of euro area banks has been greatly weakened as the ultra-low interest rates adopted by the ECB make it difficult for them to make money.

In its latest decision about interest rates, the ECB kept the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility unchanged at 0, 0.25 percent and -0.40 percent respectively.

As the economic growth in the euro area has been gaining momentum, speculations have been running widely about the timing of the ECB to unwind its version of quantitative easing and raise interest rates.

Nouy provided no clues in his speech about the possible interest rate changes, which might help the euro area banks to increase their profitability. Instead, he proposed that banks in the euro area take advantage of the favorable conditions and reduce their non-performing loan on their balance sheets that "remain a problem".

The ECB directly supervises 120 significant banking groups, which represent 82 percent (by assets) of the euro area banking sector, according to the ECB website.