FRANKFURT, Germany – The head of the European Central Bank’s supervisory board said on Wednesday that Eurozone banks had become more resilient to adverse financial conditions, though she also warned that non-performing loans remained a major problem.
At the Single Supervisory Mechanism’s annual press conference, board chair Daniele Nouy summarized the 2018 forecast by explaining that banks still faced a number of challenges, and 2018 offered the ideal opportunity to tackle them.
Nouy suggested banks should set two immediate priorities at the top of their to-do list: increase profitability and clean up balance sheets, adding that both goals were inter-connected.
“In the third quarter of 2017, non-performing loans stood at 760 billion euros ($938 billion),” she said.
Although NPLs had decreased over the past few years by about 200 billion euros, Nouy said that they clearly remained a major problem, as “NPLs drag down profits, divert resources, keep banks from financing the real economy and create uncertainty,” which, indirectly, might affect stronger banks.
The SSM chair added that banks “should use good times to reduce NPLs. And the good times are now”
She warned not to carry over residual problems of the crisis to the next downturn, as she said that was not a viable option, explaining that once a financial downturn set in, it would become much harder for banks to get rid of their NPLs.
“Cleaning up balance sheets after a crisis is one thing. Keeping them clean ahead of future downturns is another,” Nouy said.
Her parting words sent a message to the European banking community for 2018: “Conditions are as good as they are going to get. Banks should seize the moment and tackle all the challenges they face.”