© Reuters. FILE PHOTO: The logo of the European Central Bank (ECB) is seen outside its headquarters in Frankfurt, Germany, March 16, 2023. REUTERS/Heiko Becker
FRANKFURT (Reuters) )- ECB Deputy President Luis de Guindos told an Italian that the ECB is in the final stretch of rate hikes, while warning that even if indicators have remained healthy so far, borrowing costs will An uptick could put pressure on banks’ asset quality.
Since July last year, the ECB has raised rates by a total of 375 basis points and promised further hikes, but the pace of hikes has been more gradual after taking too big a step Cautious at 25 basis points in the early stages of a tightening campaign.
“We are now in the final phase of the monetary policy tightening path,” Il Sole 24 Ore quoted de Guindos as saying on Sunday. “That’s why we’re getting back to normal, in 25 basis point steps.”
These hikes have boosted lending margins for banks, but may also make some To make it more difficult for borrowers to repay their debts, discharge non-performing loans or portions of non-performing loans.
“For now, the increase in profit margins more than compensates for the potential loss of non-performing loan growth,” de Guindos said.
“The combination of economic slowdown and interest rate hikes will lead to higher financing costs for banks and possible increase in non-performing loans.”
ECB supervisory chief Andrea Enria earlier told Croatian newspaper Vecernji list that the ECB saw “some early signs” of delays in loan payments, suggesting a possible rise in non-performing loans.
“We don’t expect a wave of bad loans, but this is not the time to be complacent,” added de Guindos.
De Guindos also warned that so-called shadow banking – a category that includes non-bank financial companies such as funds or insurance companies – was experiencing “some tension”, Because they are highly leveraged, more people are exposed to liquidity risk.
Providing the ECB’s first estimate of the impact of quantitative tightening, or reducing banks’ large holdings of government debt, de Guindos said, which has pushed 10-year government bond yields 60 to 70 basis points higher, the impact of rate hikes is much larger.