ECB hails progress made by eurozone banks

FE Team | Published: May 30, 2014 00:00:00 | Updated: November 30, 2026 06:01:00

FRANKFURT, May 29 (AFP): The eurozone is making progress in strengthening its banking sector following the long years of crisis, but new risks are emerging, the European Central Bank said on Wednesday.
"Euro area banks have accelerated the clean-up and strengthening of their balance sheets since the third quarter of 2013," the ECB wrote in its half-yearly Financial Stability Review.
Since the publication of its previous report, the single currency area's banks had beefed up their capital to the tune of around 95 billion euros ($129 billion) via a wide range of instruments, the report found.
The progress made is vital as the ECB -- which is scheduled to take over as the region's banking supervisor in November -- undertakes an in-depth review of the quality of banks' assets and prepares to implement so-called stress tests in collaboration with the European Banking Authority.
The Financial Stability Review also noted sovereign risk has also improved "with the implementation of fiscal consolidation and structural reforms, although progress has been uneven."
This meant that "investor concerns regarding the global financial crisis have continued to diminish."
At the same time, the ECB warned that "new risks are emerging, particularly a growing search for yield across regions and market segments."
And as the search for yield intensified, "so do concerns regarding the build-up of imbalances and the possibility of a sharp and disorderly unwinding of recent investment flows," it said.
Another risk factor was banks' weak profitability and balance sheet stress in a low inflation and low growth environment," which fuelled scepticism regarding the solidity of Europe's banking system.
The ECB also pointed to a possible re-emergence of concerns about the sustainability of sovereign debt as a result of stalling policy reforms and a prolonged period of low growth.
"The challenge ahead is to ensure that efforts are sustained to finalise and implement necessary reforms and to ensure that the crisis conditions do not re-emerge," the ECB wrote.