Since 2018, ECB Banking Supervision has been examining how institutions deal with risks in the commercial real estate market.
(Photo: dpa)
Frankfurt The ECB Banking Supervision sees major risks for the money houses in the euro area in their commitments in commercial real estate. After on-site inspections, inspectors raised concerns about lending standards, collateral valuation and monitoring processes, the European Central Bank (ECB) reported on Wednesday in a newsletter on supervisory issues.
It is worrying that many of these issues are cross-sectoral and extend beyond commercial real estate. The euro central bank has been responsible for controlling the major banks in the euro area since autumn 2014.
Since 2018, ECB Banking Supervision has been examining how institutions deal with risks in the commercial real estate market. According to the supervisory authority, 40 banking groups have so far been screened. According to the report, further inspections are planned for the second half of 2022, which is also being considered for 2023.
Last year, the ECB also launched a targeted investigation that focuses on the institutions’ credit risk management in their commercial real estate commitments. The sector, in which considerable investments were made during the long period of low interest rates, is considered to be particularly vulnerable due to the consequences of the corona pandemic, among other things.
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Although many institutes have cleaned up their balance sheets, some are still struggling with bad commercial real estate loans from the financial crisis, the report said. In Europe, commercial real estate currently accounts for around 30 percent of all non-performing bank loans. “As inflation picks up and central banks respond by tightening monetary policy, higher interest rates may put pressure on the housing sector,” warn the regulators.
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