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[FRANKFURT] Low banking profitability across the euro area poses a stability risk as it reduces banks'ability to generate capital and lures some yield-hungry lenders into riskier territories, the European Central Bank's top supervisor Daniele Nouy said on Tuesday.
"In its search for yield, the financial sector has apparently ventured into riskier territories, driving risk premia to historic lows," Nouy told a conference. "This situation harbours the potential for an abrupt reversal that could be exacerbated by illiquidity in some segments of fixed-income markets," Nouy added.
She also warned that there were further risks facing the sector, including credit risk and heightened levels of non-performing loans, conduct and governance risk, sovereign risk, geopolitical risk and growing vulnerabilities in emerging economies, as well as IT and cyber crime risks.