MADRID, 25 May. (EUROPA PRESS) –
The Russian invasion of Ukraine and its impact on inflation and growth prospects has amplified existing vulnerabilities, increasing risks to the stability of the financial sector, according to the European Central Bank (ECB).
“It has increased the risks to financial stability through its impact on virtually all aspects of economic activity and financial conditions,” warned the Vice President of the ECB, Luis de Guindos, at the presentation of the report ‘Financial Stability Review ‘.
The ECB analysis finds that financial stability conditions in the euro area have worsened as the Russian invasion of Ukraine has pushed up energy and commodity prices, aggravating risks to inflation and growth. the region.
In this sense, he warns that, although the market reaction to the invasion has been largely orderly, the prices of raw materials and energy have remained high and volatile, causing some tension in the derivatives markets and, despite recent adjustments, some assets remain exposed to the risk of further corrections should growth prospects weaken further and/or inflation turns out significantly higher than expected.
“Vulnerabilities may increase due to the uncertain path of the Russia-Ukraine war and changing expectations of policy normalization in advanced economies,” the ECB notes, not forgetting that other potential global factors, such as a resurgence of the Covid pandemic -19, weakness in key emerging economies or a more pronounced slowdown in China, “could also weigh on risks to growth and inflation.”
On the other hand, after the recovery observed in 2021, the profitability prospects of European banks have weakened again.
In addition, the potential impact of rising energy prices, higher inflation and weaker growth could cause asset quality risks to materialize.
However, the ECB reiterates that only a few banks have significant direct exposure to Russia and Ukraine, so the eurozone banking system should remain resilient even in very adverse economic scenarios.
“The resilience of the financial system would benefit from a more effective capital reserve framework,” defends the institution, for which it is also necessary to strengthen regulation to address risks in the non-bank financial sector.
According to the ECB, companies in the euro area are facing difficulties stemming from rising input prices and a gloomier economic outlook, which may increase corporate defaults, especially in the case of firms and sectors that have not yet have fully recovered from the pandemic.
In addition, the ECB warns that highly indebted companies and those with lower credit ratings may struggle with tighter financing conditions.
Likewise, house prices in the euro area have continued to rise and the growth of mortgage loans has accelerated, although the ECB is confident that the greater presence of fixed-rate mortgages should protect many borrowers from the rise in interest rates.
