U.S. Markets

ECB's Stournaras: Many euro zone banks underestimate credit losses from pandemic

FILE PHOTO: Bank of Greece Governor Yannis Stournaras attends the annual meeting of the bank's shareholders in Athens, Greece April 1, 2019. REUTERS/Costas Baltas

ATHENS (Reuters) - Many euro zone banks underestimate credit losses they are likely to incur from the COVID-19 pandemic and supervisors will focus on asset quality this year, European Central Bank Governing Council Member Yannis Stournaras said on Friday.

“There is a widespread view that many banks in the euro area underestimate their credit losses due to the pandemic, especially for the performing customers that are currently benefiting from payment deferrals,” he told a banking forum.

Stournaras, who is the governor of Greece’s central bank, said the asset quality of European lenders would be at the epicentre of supervisory action this year.

Despite a projected economic recovery in 2021, risks remain elevated, he said.

“The resurgence of the pandemic and the new round of restrictive measures across Europe could lead to a longer and deeper recession, associated with a wave of corporate defaults, rising non-performing loans and job losses.”

Stournaras also said low interest rates, coupled with a sluggish economic recovery, pose a big challenge for European banks, “with clear implications for their core profitability and capital generation capacity”.

Commenting on loans under payment moratoria, which differ across countries and sectors, he said banks should take action to frontload the recognition of credit losses.

Reporting by George Georgiopoulos; Editing by Gareth Jones/Mark Heinrich