“Banks must repay substantial amounts of central bank loans by 2024. various banks may draw on liquidity reserves deposits—including central bank deposits—for repay central bank loanssaid the European Banking Authority (EBA) in a report on banking risks in the 12 months to June 2022.
“Some banks, however, may need to issue additional debt or increase deposits. It remains to be seen how costly it will be to replace central bank funding,” the EBA said.
Meeting the minimum requirements to issue debt that can be called off in the event of a crisis might also pose a challenge for some banks, according to the EBA.
The overdue portfolio -loans that were not paid in a timely manner- increased substantially in the first half of 2022when the economy began to deteriorate and consumers were hit by a cost-of-living crisis, prompting banks to increase provisions.
According to the supervisory body, banks continue to hold capital well above regulatory requirements.
The average return on equitya key measure of profitability, remains below the estimated cost of funds own, with the best results from Greece, Romania and Slovenia and the laggards from Hungary and Ireland.
“In the medium term, market participants do not expect large improvements in profitability“said the EBA.
