Banks in the euro zone will have to raise provisions to cope with economic slowdown

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MADRID, Sept 26 (Reuters) – Banks in the euro zone will have to raise provisions to cope with the consequences of the economic slowdown due to the fallout from Russia’s war in Ukraine, ECB Vice-president Luis De Guindos said on Monday.

“The economic slowdown will lead to a potential increase in insolvencies (…) we are already trying to get the banks to bring forward their plans because it is going to have an impact without a doubt,” De Guindos said.

“Let’s not be blinded by the short term effect, banks will have to increase provisions,” he added, recognizing a short-term boost for banks from higher interest rates.

Euro zone inflation is becoming increasingly broad while growth is weakening as the bloc is struggling with the fallout from Russia’s war in Ukraine, European Central Bank Vice President Luis de Guindos said on Monday.

“We are seeing that in the third and fourth quarters there is a significant slowdown and we may find ourselves with growth rates close to zero,” de Guindos told a conference.

Inflation is expected to have accelerated to 9.6% this month, a record high for the 19-country currency bloc, while underlying price growth, which filters out volatile food and fuels prices, is also seen accelerating.

(Reporting by Jesus Aguado and Emma Pinedo Gonzalez; writing by Balazs Koranyi; Editing by Catherine Evans)

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