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European banking supervisor urges banks to re-think business model

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[FRANKFURT] Low interest rates and exposure to substantial amounts of bad debt have severely weakened Europe's banks, and should cause them to re-evaluate their business models, the region's banking supervisor said Wednesday.

[FRANKFURT] Low interest rates and exposure to substantial amounts of bad debt have severely weakened Europe's banks, and should cause them to re-evaluate their business models, the region's banking supervisor said Wednesday.

"Such challenging times are also good opportunities for the banks to review their business models, to reassess the sustainability of their models," said Daniele Nouy, president of the Supervisory Council at the European Central Bank.

"And I believe that they have room for manoeuvre," she told a news conference.

"We see the adjustment of business models as the biggest challenge for the European banking sector," continued Nouy, who has been in charge of the supervisory authority since it was set up in 2014.

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She noted that cost-to-income ratios were still relatively high.

"They could go down, banks could be more efficient. Many are already working on this," Nouy said.

Digitalisation provided a new opportunity for banks.

"Many customers would like to receive banking services through digitalisation. This is also helping to be more efficient and to have lower cost-to-income ratios," she said.

Against a backdrop of low interest rates, a weakening of the global economy, ailing emerging economies and plunging oil prices, "many investors worry about the ability of banks to adjust their business models and sustain their profitability," the banking supervisory chief said.

Tighter banking regulations in recent years have forced banks to boost their liquidity buffers.

But this year, there were no plans to tighten capital requirements still further significantly, she promised.

Europe's new sole banking supervisory authority, set up within the European Central Bank in November 2014, is directly in charge of the supervision of 129 of the region's biggest banks.

AFP

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