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Updated December 19th, 2023 at 14:15 IST

EBC raises capital demand for 20 banks

The move was part of the ECB's push, set to continue next year, to ensure banks were making enough provisions for a possible rise in delinquencies.

Reported by: Thomson Reuters
ECB
ECB | Image:Unsplash
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The European Central Bank said on Tuesday it had raised capital requirements for 20 banks after judging they had not set aside enough cash to cover loans that had gone unpaid, a key concern for supervisors at a time of high borrowing costs.

The move was part of the ECB's push, set to continue next year, to ensure banks were making enough provisions for a possible rise in delinquencies after a surge in interest rates and the ensuing slowdown in economic growth.

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Presenting its annual evaluation of the eurozone banking sector, the ECB said it had slapped capital "add-ons" on 20 large banks over their non-performing exposure (NPE) -- financial jargon for bad loans.

"In these cases, a shortfall was identified relative to the ECB’s coverage expectations, as the cover for risks arising from aged NPEs was assessed to be inadequate," the ECB said.

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In 2024, the ECB will keep its focus on credit and liquidity risks, the latter of which was thrown in the spotlight by some high-profile banking crises outside the eurozone earlier this year, and with lenders' compliance with its climate-related requirements.

"The higher interest rate environment is expected to increase both the volatility of some funding sources and banks’ funding costs in the medium term, just when substantial amounts of central bank funding are to be replaced," the bank said.

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The banks added that there were already some early signs of asset quality deterioration given the weak economic environment and this could boost the stock of soured loans.

 

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Published December 19th, 2023 at 14:15 IST

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