Eurozone Banks ‘More Resilient’ Says Draghi

The head of the eurozone’s central bank has told the European Parliament its banks are “more resilient” though challenges remain as share prices face sharp volatility.

Banking stocks have taken a hammering worldwide in recent weeks in sell-offs linked to the slowdown in the world economy.

The pressure has been particularly evident in the euro area.

European Central Bank (ECB) president Mario Draghi told MEPs that while there were still some legacy issues arising from the financial crisis – particularly exposure to bad loans among some banks – real progress had been made in shoring up their balance sheets.

But he acknowledged the sell-offs had been “amplified” by perceptions that bank profitability will be damaged by the lower growth and interest rate environment.

Mr Draghi has presided over a negative interest rate policy for the eurozone – meaning lenders face charges to park money with the ECB – to help push banks into lending.

He told MEPs today the ECB “was ready to do its part” to stimulate economic activity and price growth.

He signalled more monetary policy action could follow in March to tackle stubbornly low inflation – currently running at an annual rate of 0.4%. Its target is 2%.

Any further easing could take the form of new interest rate cuts.

The ECB extended last year the duration of its asset purchase, or quantitative easing programme.

Mr Draghi told MEPs that the ECB would analyse the effects of the recent financial market turmoil on the transmission of its monetary policy.

He said: “If either of these two factors entail downward risks to price stability, we will not hesitate to act.”

Deutsche Bank and Societe Generale have been among the major lenders enduring share price declines, with the market value of Germany’s biggest bank still 32% down on levels seen at the start of the year.

Greek and Italian bank stocks have also been among those in sharp focus.

The ECB confirmed it was to buy bundles of Italian bad bank loans as part of its asset-purchase programme.

Italy’s MIB index recovered more than 3% of its value today in the wake of the announcement while the Greek stock market rose 7%.

[Source:- sky]