It is risky to ease the loan terms for energy suppliers, the ECB warns

The ECB’s banking supervisor yesterday warned banks against easing lending conditions for struggling energy suppliers and traders, which could increase vulnerability to the financial sector. “I would caution against the idea currently being discussed of relaxing existing margin requirements” for certain energy suppliers, ECB banking supervisor Andrea Enria said. These margin requirements “have been designed to protect the system precisely in times of stress,” he recalled.

Like Uniper, the leading importer of Russian gas in Germany, or the Austrian power company Wien Energie, several European companies in the energy sector have obtained significant additional liquidity from governments and banks in the face of skyrocketing gas and electricity prices since Russia invaded Ukraine.

The difficulties in this sector are one of the risks that banks face. But the banking sector is not taking these vulnerabilities seriously enough, Mr Enria said. “I sense that an increasingly optimistic attitude is spreading, generating some reluctance on the part of banks to seriously engage in prudential discussions,” Mr Enria warned. This “optimism” is particularly linked to the increase in interest rates, which benefits the banks after a period of lean cows linked to the ECB’s negative interest rate policy. But the economic consequences of the war in Ukraine threaten to turn into “a persistent and full-fledged macroeconomic shock”, he insisted.

Source: AFP

The ECB’s banking supervisor yesterday warned banks against easing lending conditions for struggling energy suppliers and traders, which could increase vulnerability to the financial sector. “I would caution against the idea currently being discussed of relaxing existing margin requirements” against certain…

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