Interview with ORF

Interview with Andrea Enria, Chair of the Supervisory Board of the ECB, conducted by Stefan Hartl on 8 March 2021 and broadcast on 8 March 2021

12 March 2021

We have been living in this coronavirus pandemic for a year now already. From your point of view, how have the European banks managed to get through this crisis?

Well, the recession triggered by the pandemic caught the European banks in a much stronger position than in the previous financial crisis. They have a stronger capital position, a stronger liquidity position, also thanks to the reforms that we rolled out after the last crisis. Still, there was a concern that banks could reduce their lending, their support to households, small and medium-sized enterprises and corporates due to the enhanced risk environment. That's why last year we took some relief measures and also constrained banks' payments of dividends and bonuses to help them support the economy.

From your point of view, does the coronavirus crisis have the potential to end up in a new banking crisis?

There is of course a concern related to asset quality. It's the harshest recession in peacetime on record for the European economy so it is clear that there will be defaults and these will materialise on the banks' balance sheets in terms of deterioration of asset quality. Still, we ran an analysis last summer testing the resilience of the banking sector in different scenarios. It was clear that if we remain in a central scenario of a deep recession followed by a rebound of our economy, most banks will be able to withstand the crisis without problems. Of course, if there is a much stronger, more protracted recession, that could be a risk for some of our banks. But we must say that with the start of the roll-out of the vaccine, this has become a scenario with lower probability.

I'd like to talk about Austria; do you see any risks for Austrian banks?

I must say that Austrian banks are facing the same risk environment as European banks in general. They entered the crisis with a better asset quality than the average European banks. The crisis also hit the banks' profitability hard, of course. The profits are down because of increased loan loss provisions and Austrian banks had a lower cost efficiency than the average banks in the European Union. I must say that the issue of profitability, cost efficiency, sustainability of business models is a very important issue and the crisis caught the European banking sector in a situation of structural inefficiency.

Still, quite a lot of economists are expecting a wave of bankruptcies once the state aid measures run out. What is your view on that? Are there any concerns about banks, especially in Austria?

Indeed, if you look at the balance sheets of the banks today, there hasn't been an increase in non-performing loans. The asset quality has not deteriorated, but this is largely due to the extraordinary support measures that all governments around Europe have taken, including Austria. These include moratoria on payments and support to the households and small and medium-sized enterprises and corporates. So it's clear that when these measures are withdrawn there might be an impact on the defaults and therefore also on the banks' balance sheets. And this impact could be asymmetric. There could be sectors which are affected harsher than other sectors and this is an area which we are now asking banks to be particularly focused on, assessing the viability of their customers in the medium-to-long term.

Which sectors are you talking about?

Well, there are several sectors of course. The accommodation and tourism sectors have been particularly hit. The transport sector as well. Also within sectors there are different impacts so it's important that banks try to look through the pandemic, look through the support measures provided by governments to assess the viability of customers in the medium-to-long term, and to do a proper evaluation and a proper provisioning of their positions.

To sum it up, from your point of view right now, Austrian banks are managing the crisis quite well. They are quite safe, as you say?

Well, yes, I must say that so far banks have behaved very well. They have continued to support their customers. There has been no reduction, in fact there has been a significant expansion in lending that was necessary to support viable customers to go through the desert, so to say, of the distancing measures created by the pandemic. They have not seen any difficulty in their balance sheets. They have a strong capital position, and a fairly strong liquidity position. So far, so good, but we are supervisors; we need to look also at the possibility of adverse events materialising in the near future. So it's a moment to be very attentive and focused.

I'd like to talk about negative rates right now. As you know, in Germany for example savers already have to pay for their savings if they have them at their banks. Will that be the new normal for savers?

Well, low interest rates will stay with us for a while. Let me say that in terms of the pricing policies of banks, of course this is not something in which we as supervisors interfere. It's the decision of the banks. We also have to say that the low interest rates of course are reducing the income that savers can get on their deposits. But it's also a measure that enables the banks to lend more, to support the real economy more. The low interest rate environment is also supporting lower unemployment rates and higher growth in our economies. So there are positive effects, and of course there is also an issue of stimulating the economy via supporting spending and investments.

If you allow me, that brings me to the topic of inflation, quite hotly discussed right now. And if there is a comeback of inflation, through all the money that floods the market right now. What is your view on that?

Well, I am a banking supervisor so that's more a task for my colleagues on the central banking side of the ECB. At the moment I think that the most important focus of all policymakers should be in supporting our economies to have a robust recovery, a robust rebound from the recession triggered by the pandemic, and to get our households, small and medium-sized businesses and corporates back on track and avoid a wave of defaults. I think that should be the main objective of public policies at this moment. It is important that the support measures especially are not withdrawn abruptly and that there is a phased-out gradual process from the support measures which have been provided during these first months and first year of the pandemic.

The pandemic is always a question of time. How long might this crisis still take, and will the banks come through it? Or will there be a point after the fourth wave, after the fifth wave of the coronavirus, that the banks are getting in more trouble than they are now?

It is now since the last summer that the central scenario which has been developed by our economists has stabilised towards the deep, sharp recession in 2020, followed by a gradual recovery that would bring the economy back to the pre-crisis level around the second half of 2022. This scenario has been resilient also to the second and third wave. We have seen also positive indications in recent data, so I think that all in all, at the moment we are still working under the assumption that this will be the central scenario. Of course we are also running a stress test right now, under the coordination of the European Banking Authority, to check how the banks would fare also under a more adverse scenario in which some unexpected negative event would derail the economy from this path. We'll be able to give to the public the results in July this year.

I'd like to still come to one last topic. We have seen quite a crazy ride of bitcoin these last weeks. But still there is not a real path for banks, how they deal with cryptocurrencies. What is your point of view on that?

Well, first of all, I don't like to talk about cryptocurrencies. These are not currencies; they are speculative assets with a high volatility in which investors can put their money. From our assessment, these types of crypto-assets do not generate a major risk for financial stability. Still, there are of course risks for investor protection, consumer protection, because they can be very volatile. We have seen investors losing money in these types of investments. So it's important that banks are very cautious in the way in which they engage with these assets and the way in which they maybe distribute these products to their customers, which we strongly discourage. In terms of the prudential treatment of these assets, there is work underway at international level at the Basel Committee. The European Commission has also issued a proposal for a regulation on these crypto-assets, the so-called markets in crypto-assets regulation, MiCA. It's very important that we have a harmonised treatment of these assets at the European Union level.

Thank you so much for your time.