ECB: Rapidly rising interest rates harbor risks for banks
According to the European Central Bank (ECB), banks in the eurozone remain vulnerable to external shocks. The outlook for overall financial stability remains fragile, the central bank announced on Wednesday at the presentation of its semi-annual Financial Stability Report.
"The weak economic outlook and the consequences of high inflation are weighing on the ability of people, companies and governments to service their debts", explained ECB Vice President Luis de Guindos in Frankfurt. "It is crucial that we remain vigilant as the economy transitions to an environment of higher interest rates, accompanied by growing uncertainties and geopolitical tensions."
Demand for new financing recently declining
Financial institutions have benefited from the rapid rise in interest rates since July 2022 because they earn money from higher lending rates, for example, and receive interest themselves when they park money with the ECB. However, banks in Germany, for example, have many long-term loans with relatively low interest rates on their books, and demand for new financing has tended to decline in recent months. On the real estate markets, the turnaround in interest rates put an end to years of rising prices, while higher financing costs are becoming a burden for commercial real estate.
"Eurozone banks are benefiting from rising interest rates, but are facing headwinds from higher financing costs, poorer asset quality and lower lending volumes," summarizes the ECB. Overall, the eurozone banking system is "well positioned to withstand these risks". However, the ECB believes that the recently increased capital buffers, for example for possible setbacks on the real estate markets, should be maintained.
The European Central Bank (ECB) emphasizes the importance of vigilance as the economic situation transitions to an environment of higher interest rates, given the vulnerability of banks in the eurozone to external shocks and the potential impact of high inflation on debt servicing. Despite banks in the eurozone benefiting from higher interest rates due to increased lending rates and interest from parked money with the ECB, demand for new financing has decreased, posing challenges such as higher financing costs, poorer asset quality, and lower lending volumes.
Source: www.dpa.com
