The European banking supervisor warns of geopolitical and macroeconomic risks to the sector

The head of the European Central Bank's supervisory body, Claudia Buch, warned on Thursday of the risks facing the banking sector. The former deputy head of the German Bundesbank said that alongside geopolitical instability, the evolving economic and financial landscape “puts banks to the test.”

In an intervention before the European Parliament's Economic Affairs Committee, the German warned that the profit prospects of banking entities may deteriorate if… “Increasing financing costs, If loan growth weakens or losses occur.”

The former Vice President of the German Bundesbank set the context of exposure to particularly sensitive sectors Changes in interest rates Losses may increase in the banking sector. He justified that “in the first three quarters of 2023, non-performing loans were already gradually increasing, mainly driven by commercial real estate loans and consumer loans.”

Banking entities “operate under a high degree of uncertainty due to geopolitical and environmental risks “hard macroeconomics”Buch explained to members of the European Parliament. Added to this are changes related to digitization, demographic transition and climate change.

Regarding this last point, the German company sent a clear message: “Banks must address climate-related risks by improving their assessment, management and monitoring.” Detect such risks.”. In order to improve the flexibility of banking entities, he stressed the need for these entities to have “strong capital positions, effective risk management and governance, and flexible information technology systems.”

The risks mentioned require “Strong governance structures and adequate provisions,” The head of the organization explained. ECB supervisors will continue to address deficiencies “in banks’ credit risk management frameworks, the work of their governing bodies and their ability to manage and use risk-related data efficiently.”