Even if the worst-case scenario seems to have been averted thanks to a stronger-than-expected economic rebound, European banks, which remain well capitalised, must continue to assess, as proactively as possible and on a client-by-client basis, the credit risk arising from the Covid-19 pandemic, said the chairman of the ECB’s Single Supervisory Board, Andrea Enria, on Thursday 1 July.
“Our main goal as supervisor is still to ensure that banks are able to identify and manage any credit risks on the horizon at an early stage”, said Mr Enria in a dialogue with the European Parliament’s Committee on Economic and Monetary Affairs.
In response to questions from Jónas Fernandez (S&D, Spain) and Michiel Hoogeveen (ECR, Netherlands), he said that the single banking supervisor in the euro area expected a smaller surge in the stock of non-performing loans (NPLs) than had been anticipated in autumn 2020.
“It does not mean there can not be a significant increase (in NPLs). There is a need to be ready and the best way is to adopt preventive measures, to be pro-active in the engagement with consumers, to ensure proper classification of distressed customers”, said Mr Enria. He highlighted the “effectiveness” of prudential measures in place to manage and contain the increase in non-performing loans, such as the development of calendar provisioning.
The Chair of the Single Resolution Board also recalled the need for the EU to adopt instruments such as the creation of asset management companies or the use of securitisation, sometimes accompanied by public guarantees, to clean up the balance sheets of NPLs (see EUROPE 12590/16).
“The more we have a European framework in this area, the better”, he said.
Dividends. With the economic upturn better than expected, Mr Enria called for a gradual return to normalcy, particularly in terms of dividend payments.
“In the absence of materially adverse developments, we plan to repeal our recommendation as of the end of the third quarter of 2021 and return to reviewing dividends and share buybacks as part of our normal supervisory process”, he said.
Speaking earlier to MEPs in her capacity as Chair of the European Systemic Risk Board, Christine Lagarde also raised this possibility.
At the end of 2020, the ECB had asked to limit the distribution of dividends to a maximum until September 2021 (see EUROPE 12624/6).
Banking Union. Furthermore, Mr Enria reiterated the importance of completing the Banking Union in the euro area, while the Eurogroup has not managed to agree on a specific work programme due to the German parliamentary elections in September (see EUROPE 12745/12).
“The remaining segmentation of our banking markets, which is to a large extent driven by legislative constraints reflecting the national nature of deposit insurance schemes, is an important inefficiency that ends up being paid for by bank customers”, he said.
Digital euro. Danuta Hübner (EPP, Poland) asked him about the impact of a digital euro on the banking sector.
If the ECB decides to proceed with the work leading to the creation of a digital euro, it must not lead to a “flight of bank deposits” , which would lead to increased instability in the financial system, said Mr Enria. He called for measures such as the introduction of maximum limits for the digital euro portfolio and penalties if these limits are exceeded.
“The digital euro should not be a direct competitor for banks”, he stressed.
At the end of June, the member of the ECB’s Executive Board responsible for this dossier, Fabio Panetta, had mentioned discussions on a 2,000 or 3,000 euro wallet that would allow payments, but not investments (see EUROPE 12750/26). (Original version in French by Mathieu Bion)