ECB to check bad debts as economy slows

The European Central Bank (ECB) has announced that it will concentrate its efforts on addressing bad loans held by euro zone banks in the coming year. The ECB found that some banks in the region had set aside inadequate amounts for potential losses, or were slow in recognizing the issue.

The ECB’s annual review of the banking sector indicated that banks in the euro zone had more capital than necessary, and the profit they generated was boosted by rising interest rates, which offset the economic impact of the conflict in Ukraine. Nevertheless, 24 banks were told they needed to increase their capital to meet the ECB’s expectations for coverage of non-performing loans.

The ECB identified ongoing risks associated with banks’ loan management and categorization, and found persistent weaknesses in their risk control and governance frameworks. In a statement, the ECB’s top supervisor, Andrea Enria, stated, “Banks need to address persistent weaknesses, particularly in their risk control and governance frameworks, and to assess future developments in a prudent way.”

On the same day, France’s Societe Generale reported a 35% decrease in profits from the previous year after setting aside additional provisions for potential loan losses in the final quarter of the year.