The supervisory authority believes: Europe’s banks are stable, but there are significant risks

In view of recession and major real estate bankruptcies, the banks automatically come into focus. However, according to state supervision, these are not in danger, although they do need to make improvements in some areas.

The annual report from the major bank supervisory authority of the European Central Bank (ECB) gives the banking groups a good overall report. They are stable and profitable. But the management of risks fundamentally needs to be improved.

Poor management of economic shocks?

According to the supervisors, this not only affects the ability to respond to economic shocks, but also the security of computer systems. In addition, some financial institutions poorly assess the risks arising from climate change.

The average profit is currently already in the double-digit percentage range of the capital invested by the banks. But this good profit situation is not reflected in the stock market value of the companies. According to the banking regulator, this indicates that investors do not believe in long-term good profits.

But the starting situation is currently good; after all, the increased interest rate level makes it easier for banks to make profits, even if this would increase the risks.

The property valuation needs improvement

The climate crisis poses additional risks if banks continue to finance industries with no future prospects. Banks still have a lot of work to do here. This also applies to the valuation of real estate. Bank supervisors emphasized that financial institutions must ensure that the properties deposited as security for loans generate sufficient income and that their sales value is realistic.

In their report, the supervisors also expressed great concern about the banks’ computer systems. They are not allowed to outsource too much to external companies, but must control the technical processes themselves. They would therefore like to initiate a stress test for the banks’ computer systems in 2024.

Postbank is still struggling with its IT

The ongoing problems at Postbank in Germany have shown over the last few months how important this point is. The merging of millions of customer data on a common platform between Deutsche Bank and Postbank has still not been completed satisfactorily. On the contrary, the project, which has led to complaints from many customers, will continue to concern the group in 2024. Customers who were affected by the delay in seizure requests can now even apply for compensation online via the Postbank website.

In September, the problems even led to an official reprimand from BaFin. Since then, this has been monitoring the progress in solving the IT problems. However, the banking supervisory authority was itself affected by IT problems this year and was therefore able to carry out its tasks at short notice, such as monitoring the crypto market and its numerous new coins such as Bitcoin ETF, do not comply.

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