Its banking sector Eurozone resilient to weather a possible recession, but European Central Bank is still asking banks to review their capital buffers as the winter looks set to be difficult, says ECB supervisor Andrea Enria. Eurozone financial institutions have been heavily capitalized in recent years and are also expected to benefit from rising lending rates, but the almost inevitable recession and high energy costs are sure to put pressure on some sectors. “We are pushing banks to pay more attention to reducing their risks in sectors that are especially dependent on energy and vulnerable to energy crises,” Andrea Enria emphasized, speaking at a conference in Brussels. “Therefore, we are asking banks to re-evaluate their capital buffers, taking into account scenarios of severe turbulence and adverse conditions, while we are ready to open a dialogue with them,” he added.

Speaking about banking groups that are involved in the financing of commercial real estate, housing and consumer loans, Andrea Enria stressed that they are particularly vulnerable to rising borrowing costs and need attention. He also pointed out that the ECB is pushing banks to carefully analyze their risks in particularly energy-intensive sectors, because the consequences of the Russian invasion of Ukraine are spreading to the economy at a rapid pace. And according to sources cited by Bloomberg news agency, the ECB sent out letters to banks urging them to analyze the impact of interruptions in natural gas supplies on their activities. Answers are expected in mid-September, with further negotiations to take place before the end of this month. Andrea Enria also added that while banks are starting from a position of strength thanks to high levels of capital adequacy, the models used to predict the future can sometimes paint an overly optimistic picture.

A near-certain recession and high energy costs will no doubt hit part of the industry.

In addition, according to European Central Bank vice-president Luis de Guido, Spain has not yet entered into negotiations with the bank regarding the planned taxation of financial institutions, which can be changed. However, he warned that in the current environment of great economic uncertainty, such measures should be viewed with caution, according to Bloomberg. The country’s governing coalition has proposed a bill to introduce a temporary tax on banks and energy groups, aimed at raising 7 billion euros with a horizon of 2024 – with these funds, citizens will be spared the effects of the energy crisis. “I’m not going to discount the events, but we need to know the details,” said Luis de Guidos. “So far the Spanish government has not consulted with the ECB.” While interest rates are higher and increase profit margins, “we could find ourselves in a situation where banks need higher reserves to cover larger loan losses,” the ECB vice president concluded.