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The Biggest Risks for the European Banking Sector, According to Sabine Lautenschläger

Sabine Lautenschläger, Member of the Executive Board of the European Central Bank, gave a brilliant speech on two of the biggest risks for the European banking sector: non-performing loans and the Brexit. She began right away on visualising the importance of anticipating risks with an interesting story: “Have you ever heard of Méteora?”

Méteora is a rocky place in Greece where monasteries were built. Before 1920, these monasteries were very hard to reach. In fact, you could only get there if a monk pulled you up in a basket. Legend has it that a tourist got nervous when he saw that the rope attached to the basket was very frayed and old. “Do you ever replace this rope?” He asked the monk. “Yes...when it breaks,” the monk answered.

Sabine makes a solid point – it is the job of the people in the banking industry to anticipate the risks and prevent the rope from breaking. Ready to prevent some risks in Finance? Have a look at our positions.

Lautenschläger goes on, explaining further the two biggest risks the banking industry is facing:

NPL

Non-performing loans have been a problem in finance for a long time. However, recent figures indicate that the situation is improving. The ratio of NPLs in the European area has gone down from 7.5% to 5.5% since 2015. In some parts of the banking sector, however, the ratio is still too high. The ECB is guiding banks to remain sound and healthy, with clean balance sheets that will not be weakened by the NPLs.

BREXIT

According to Lautenschläger, the risks have been clear from day one: “Banks operating from the UK might lose access to the European market, when they’ve left the EU and have lost their EU passport.” Her message to the banking sector is to be proactive and well prepared. Banks should include the continuity of contracts in their contingency plans and should assess what Brexit means in their recovery plans. In short, they should prepare, plan ahead and be clear about their strategies.

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