The ECB "hopes" that European banks say goodbye to Russia as soon as possible. This was stated by the president of the Supervisory Board of the European Central Bank, Andrea Enria, from the stage of the Festival of Economics. “We have already stressed that the direct impact is manageable; the indirect impact, on the other hand, is different, but all our banks intend to exit”, said the Italian banker, referring to the number of banks directly supervised from Frankfurt. Enria remembered that the French SocGen has already sold and that others “are negotiating: the risks are reducing, but it's not easy. The hope is that it will close quickly”.
Rate hike? For banks, if moderate, it is positive
As for the "normalization of interest rates" with a gradual rate hike by the ECB, it would have a "positive" impact on European banks, according to Enria. It would be different if the picture worsened in the face of uncertainty, which is very high. "The worst case scenario remains that of a recession, or zero growth or more persistent inflation." In this second scenario, ie that of stagflation, "rates would be less predictable and the potential deterioration in asset quality would weigh in balancing the positive and negative aspects". Enria explained that for this reason the Supervisory Authorities are putting "a strong emphasis with the banks on the strengthening of credit risk monitoring and attention on the sectors most impacted by the new shocks and most sensitive to rates".
Digitization is a must for banks: Europe invests less than the USA
"Digitization is a must for banks, but if we look at the system as a whole we see that there is a delay in IT investments by European banks compared to US ones - Enria said again - There is a problem of volumes: we are very lower", but "there are banks that have started to move massively". Another aspect of digitalisation, he added, is represented by "cyber risks, which are greater".
Little appetite for cross-border acquisitions
“When I talk to the CEOs of European banks they tell me that there is no great appetite for making cross-border acquisitions – underlined the number one of the ECB Supervision – This is a pity, because it would be important for banks to look at the banking union as the their home market. Huge progress has been made with the banking union: now we have harmonized regulation”.
In Europe, low valuations due to limited profitability
Finally, Enria noted that “Europe has a large and global banking sector by assets, while by market capitalization the leading European bank is in 27th place. The problem with European banks is their valuation, which is very low, and this is because they have very limited profitability. Banks need to become better at cost efficiency and go digital. Those who revised the business model improved profitability”.
