ECB urges European banks to effectively manage risks

The European Central Bank (ECB) on Tuesday urged banks in the bloc to continue effectively managing risks, reported Xinhua.

European banks have shown resilience this year, said Andrea Enria, chair of the supervisory board of the ECB.

Presenting the results of ECB's annual supervisory review and evaluation process, Enria said that the banking turmoil in U.S. and Swiss banks underscored the risk that rapid interest rate adjustments may cause market instability, although banks supervised by the ECB "were not significantly affected."

However, the ECB warned that the quality of bank assets in the euro area could face deterioration, either due to geopolitical risks or as a result of elevated inflation and more restrictive financing conditions.

Regarding the real estate sector, both residential and commercial real estate markets are currently witnessing a downturn, the ECB highlighted. Additionally, the outlook for commercial real estate companies has worsened, due to declining tenant demand and adverse credit rating actions.

The ECB announced that it has imposed capital "add-ons" on 20 major banks, due to the identified shortfalls in their bad loans coverage compared to supervisory expectations. It has also enforced capital requirements on eight banks concerning their leveraged finance operations.

For the next three years, the ECB said it will focus both on the near-term risks to the banking sector, especially credit risks, liquidity and funding risks, and the need to tackle more structural medium-term challenges such as climate-related and cyber risks.