ECB tells banks to factor in further drop in property prices

European Central Bank (ECB) headquarters in Frankfurt

A view shows the logo of the European Central Bank (ECB) outside its headquarters in Frankfurt, Germany March 16, 2023. REUTERS/Heiko Becker/File Photo Acquire Licensing Rights

FRANKFURT, Nov 7 (Reuters) – Euro zone banks should factor in the risk of a further fall in property prices when they make provisions and plans about their capital, the European Central Bank’s chief supervisor Andrea Enria said on Tuesday.

The European property market has come under pressure from the ECB’s steepest and longest streak of increases in interest rates, which are now at record highs.

With real estate prices already falling in several countries, most notably Germany, where there had been a boom during the last decade of low interest rates, Enria told lenders to brace for more pain.

“The current higher interest rate environment could put further downward pressure on office and house prices, making it harder for commercial property owners and households to service their debt,” Enria told the European Parliament.

“Banks should account for these risks in their provisioning practices and capital planning.”

As the euro zone’s top banking supervisor the ECB sets capital requirements for banks, and has been known to push back on their plans to pay dividends or buy back shares.

Source : Reuters

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