ECB warns of “first signs of stress” in euro area banks

According to the November review of financial stability by the European Central Bank (ECB), the balance sheets of eurozone banks show “first signs of stress” due to the increase in loan defaults and overdue payments. The level of defaults on corporate and retail loans has begun to rise, and the share of loans overdue by less than 90 days but still being serviced has also increased, exceeding historically low levels observed in 2022.

The regulator notes that the most vulnerable countries may be those with “predominantly floating rates,” which are likely to face a more pronounced deterioration in asset quality if the labor market significantly weakens. Additionally, the ECB predicts that bank profits will suffer due to reduced lending volumes and increased funding costs.

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