Published on Thursday, June 15, 2023

Europe | European banking: differential resilience

In the latest report on financial stability in the eurozone, the European Central Bank (ECB) analyzes the main vulnerabilities and risks, warns about the uncertainty in the macroeconomic and financial environment and its impact on the different economic agents.

Key points

  • Key points:
  • Erring on the side of caution, the ECB highlights the favorable performance of the private sector's financial situation. In the case of companies, this is due to the strong recovery after the pandemic, which has led to improved margins and profits in many sectors.
  • However, it warns that there is a disparity by sector (those which have greater difficulty in passing on cost increases and are more dependent on energy consumption are more vulnerable) and by size, with the smallest and most indebted companies in a weaker situation.
  • With respect to households, despite the increase in the financial burden and the negative impact of inflation, the containment of energy prices and the good performance of the labor market (with unemployment at historic lows) have contributed to maintaining their resilience.
  • The ECB also stresses that, despite the increase in bank profitability following the rise in interest rates, not all banks are benefiting equally from the new environment and that we are likely to see an increase in non-performing loans in the face of a weak economic outlook and that there are indeed some signs of deterioration in the real estate and consumer credit markets.
  • The report also analyzes non-bank financial intermediaries (NBFI), noting that investment funds are relatively more exposed to liquidity and credit risks, while insurers (particularly in the life segment) remain resilient and benefit from higher interest rates.

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