The Banking Executive Magazine - May 2022 Issue

ECB ECB TELLS BANKS TO BUCKLE UP AS UKRAINE WAR HITS ECONOMY The European Central Bank has told banks to buckle up and prepare for a bumpy road ahead as the Ukraine war hits the economy and a sudden surge in interest rates makes markets more volatile, the ECB top supervisor Andrea Enria said. Euro zone banks were just coming out of emergency measures imposed at the height of the coronavirus pan- demic, including a cap on dividend payouts, when the conflict broke out in February and the economic out- look darkened again. Enria said supervisors had now told banks to "reassess" their expecta- tions, including on how much capi- tal they will have at their disposal. "We have asked banks to reassess their projections and capital trajecto- ries in the light of the new macroeco- nomic picture, also considering adverse scenarios," Enria revealed. In slides prepared for a meeting with the Italian banking lobby, Enria said higher energy and commodity prices were driving up inflation and slow- ing growth, overshadowing a boost to bank margins from rising interest rates. On the upside, he said banks had shown resilience in 2021 and contin- ued to clean up their balance sheet, despite an increase in corporate de- faults in the last three months of the year when COVID-19 support meas- ures were retired. the BANKING EXECUTIVE 16 ISSUE 161 MAY 2022