Eurozone banks must factor in the risk of a further decline in property prices when forecasting and planning for their capital, European Central Bank supervisor Andrea Enria said in a speech to the European Parliament.
The European property market is under pressure due to large and sharp increases in ECB interest rates, which are now at record levels.
With property prices already falling in several countries, particularly Germany, where they had soared in the last decade of low interest rates, Enria called on banks to prepare for more trouble.
“Today’s high interest rate environment could put downward pressure on office and home pricesmaking it more difficult to service the debt of households and commercial property owners… Banks should consider these risks in their forecasting practices and in planning their capital position,” Enria noted.
Flood of loans in the last decade
In the last decade the banks lavishly provided loans for real estate purchases, especially in the richest European countries, such as Germany, France and the Netherlands.
The sharp rise in inflation over the past two years forced the ECB to tighten its belts and end the rise in property prices; pushing real estate companies into bankruptcy as liquidity dries up, deals freeze and prices drop.
It is noted, however, that in Greece real estate prices, which had plunged during the period of the memorandums, continue to rise today.
The Italian Enria’s term as head of the ECB’s Single Supervisory Board ends at the end of the year and the German Claudia Bach has been appointed as his successor.
With information from Reuters
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