The euro zone banking sector is robust ahead of a possible recession but the European Central Bank is still asking lenders to review capital projections given what is likely to be a difficult winter, ECB supervisor Andrea Enria said on Monday.
Banks have built ample capital over recent years and also stand to benefit from rising interest rates but an almost certain recession and sky high energy costs are bound to weigh on parts of the sector.
“We are pushing banks to focus very much on their concentration of exposures towards sectors which are particularly dependent on energy and fragile to energy shocks,” Enria told a conference in Brussels.
“So, we are asking banks to review their capital projections under severe, adverse scenarios and we will engage in a dialogue with them.”
The ECB raised rates by a combined 125 basis points in its past two meetings and two more rate hikes are still likely this year, making it the most aggressive cycle of policy tightening in the bank’s history.
Enria noted that firms involved in financing commercial real estate, residential real estate and consumer finance are particularly exposed to rising borrowing costs and warrant attention.
“Then there is also the issue of exposures to energy derivatives clearing that we’ve seen as an issue in the recent times,” Enria said.