European Banks Pile Into Risky Loans as Economic Outlook Darkens
European banks are racing into risky lending that is exposing them to major threats in an economic downturn.
(Bloomberg) -- European banks are racing into risky lending that is exposing them to major threats in an economic downturn, the top banking regulator in the region has warned.
In its annual report on risks to the industry, the European Banking Authority highlighted firms’ “search for yield” as they lend to the commercial real estate sector and small and medium-sized businesses, as well as extend more consumer credit.
As they grapple with a period of negative interest rates and low profitability, the banks are telling regulators that they intend to do more risky business, even as an increasing number of lenders expects the quality of their assets to decline.
“There are challenges on the horizon that deserve close monitoring,” the EBA said. Banks must avoid easing credit standards too much, and instead build up the strength to weather a weakening economy, according to the regulator.
The EBA also found that passing on the costs of negative rates to consumers could damage banks’ relationships with depositors, especially at smaller lenders, as well as pose a challenge to how lenders try to finance their loans.
The banking authority also urged lenders and national supervisors to increase their efforts to combat money-laundering following some high-profile lapses. Addressing Brexit, the EBA warned banks not to rule out the possibility of a no-deal outcome on Jan. 31.
To contact the reporters on this story: Silla Brush in London at sbrush@bloomberg.net;Alexander Weber in Brussels at aweber45@bloomberg.net
To contact the editors responsible for this story: Ambereen Choudhury at achoudhury@bloomberg.net, Keith Campbell
©2019 Bloomberg L.P.