In the not too distant future, the ECB it could ask major European banks to comply more stringent capital requirements and this is likely to have consequences on dividends. The warning comes from Andrea Enrico, number one of the Eurotower Supervision, in a hearing at the European Parliament.
“In the euro area we cannot rule out the possibility of more adverse scenarios on economic growth and inflation - explains Enria - There is the possibility that new sanctions against Russia will be introduced or that those already in force in the energy sectors will be strengthened and raw materials, and it is also possible that retaliation will come from Moscow”. If these will be the developments, “we will propose to the banks of recalculate their capital levels for adverse scenarios and to use recalculation for profit distribution plans”, i.e. to establish dividends.
The rate hike is good for the banks…
In any case, according to the chairman of the ECB's supervisory committee, at the moment the scenario for banks in the Eurozone is still largely positive, because "the gradual increase in interest rates brings benefits to the banks as a whole. In the first quarter, the increase in yields, together with the continued growth of loans, supported positive levels of interest income. Net income from fees, rates and trading was solid, and improved operating profits more than offset increases in expenses, driving cost efficiency improvements.
The result is that "many banks continued to post profits and even the few that have large direct exposures to Russia have avoided ending up at a loss – underlines Enria – In addition, the continuous progress made on non-performing loans have improved the resilience of banks.
…but the provisions have already risen
At the same time, however, the increased risks deriving from exposure to Russia and other countries directly involved in the conflict, together with the weakening of growth prospects, "have already led to upward revisions of provisions” in view of possible losses. Furthermore, according to Enria, effects on asset quality of a disorderly exit from the context of low rates could undermine the benefits deriving from the increases in the rates themselves, "especially in the mortgage sector and in those with high leverage or sensitive to energy and raw material prices".
Stocks on the stock exchange of banks collapse
At the end of the morning, the shares of the main Italian banks collapsed on the Stock Exchange: Unicredit -5,1% Understanding -4,3% Bpm bank -3,7%. In the same minutes, the Ftse Eb it dropped 2,2%.
The priorities of the ECB Supervision
Finally, Enria listed the priorities of banking supervision: making sure that banks come out of the pandemic in a solid way; monitor risks as they emerge, such as institutions' exposure to leveraged loans, high-yield sectors and non-bank financial institutions; accelerate the green transition and intensify controls on risk management related to information technology.
Read also - ECB, Supervision: "We hope that European banks leave Russia as soon as possible"
