Thursday, May 19 2022

FRANKFURT (Reuters) – Eurozone banks are finally accepting interest rates to stay low for a long time and have started to transform their businesses to cope with the new reality, European Central Bank supervisor Andrea said on Tuesday. Enria.

“Before the pandemic, many banks were still awaiting the Godot of an interest rate hike that would have pushed up their margins and restored their profitability,” Enria said at a Finnish surveillance conference.

“The pandemic has increased awareness in the banking sector that the interest rate environment will remain difficult for longer,” he added.

Merger activity is at its highest level since 2008, as lenders are also closing branches, downsizing and embracing digitization in new ways, Enria added.

“The banks have started buying and selling lines of business, which in my opinion is the best signal so far of a refocusing of the banks, of a rebalancing of their business model,” said Enria.

Still, it will be years before this transformation starts to impact profitability and in the short term it could be a drag on costs as banks are charging upfront restructuring charges, Enria added.

He said banks are also seeing a further drop in the amount of bad loans on their books, but that projection may be overly optimistic given that businesses are still suffering from the impact of the pandemic.

“All banks are basically expecting a continued decline in gross NPLs (non-performing loans) until at least the end of 2022 and of course we are concerned that expectations are a bit bullish,” Enria said.

(Reporting by Balazs Koranyi; Editing by Andrew Heavens and Ed Osmond)


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