Emphasis on “increased risk” in the European Central Bank report

The European Central Bank (ECB) warned that “price correction risk” in the Eurozone property market has increased due to tighter monetary policy and low market liquidity.

The ECB has published its “Financial Stability Assessment” report for the Eurozone.

The report noted that price adjustments are necessary given the high valuations in the real estate market in recent years.

In the report, which states that the sharp increase in interest rates affected some heavily indebted countries, companies and households, it was noted that there may be a decline in prices as interest rates on new loans rise. Mortgage in these countries increasingly jeopardizes affordability and increases the interest burden on existing mortgages.

The report, which includes assessments of the commercial real estate market in the euro area, reported that there were very few bankruptcies among companies in this market segment, although demand for office and commercial properties fell significantly.

“More obvious weaknesses in this market, such as capital withdrawals; “It could expose security vulnerabilities in some real estate funds, increase default risks for lenders and reduce the value of collateral for loans.”

SIGNED THAT RISKS MAY RISE

The ECB report noted the risks to businesses and households from rising interest rates, noting that the risks would increase, especially in the event of a more pronounced economic slowdown and a further increase in interest rates.

Households now benefit from falling energy prices and a stable job market, and those households could come under even greater pressure if unemployment rises and energy prices rise significantly again, according to the report.

Regarding banking risks, the report says that “there are already some signs of increased risk in loan portfolios that are more susceptible to economic downturns, such as consumer, SME and commercial real estate lending risks.”

In the report, it was emphasized that if the basic economic and financial data for companies deteriorate significantly, this situation can generate high losses.

“PROFITS MAY BE LESS”

The ECB experts also noted that banks often benefit from rising interest rates, adding: “Interest rate yield gains may be smaller as investors recently adjusted their expectations of future monetary policy and expect lower interest rates.

Unlike the US, the ECB is said to believe that losses on eurozone banks’ bond portfolios are limited and that the risk of a liquidity bottleneck is low in the region, similar to the Silicon Valley Bank.

ECB Vice President Luis de Guintos, who launched the report, stressed that price stability is very important for ongoing financial stability, saying: “However, as we tighten monetary policy to combat high inflation, this can reveal vulnerabilities in the financial sector. system. “It is critical that we control for such vulnerabilities and fully implement the banking unit to keep them under control.” (AA)