ECB also applies addons for leverage
Focus remains on credit, liquidity in 2024

FRANKFURT, Dec 19 Reuters The European Central Bank said on Tuesday it had raised capital requirements for 20 banks after judging they had not set aside enough cash to cover for loans that had gone unpaid, a key concern for supervisors after borrowing costs rose sharply.

The move was part of the ECB39;s push, set to continue next year, to ensure banks are preparing for more delinquencies and tighter liquidity after it jacked up interest rates to fight high inflation.

Presenting its annual evaluation of the euro zone banking sector, the ECB said it had slapped capital addons on 20 large banks over their bad loans.

In these cases, a shortfall was identified relative to the ECB39;s coverage expectations, the euro zone39;s central bank and top banking supervisor said, without naming individual lenders, as is its policy.

It said there were already some early signs of asset quality deterioration given the weak economic environment and warned this could boost the stock of soured credit.

The ECB also imposed capital charges on eight banks over their exposure to leveraged finance lending to already indebted borrowers.

In addition, it applied an extra capital requirement to six banks, and gave guidance to a further seven, for taking on too much leverage or trying to paint an excessively rosy picture of their financial position.

We focused on persistent, and in some cases longstanding,…