The vice president of the European Central Bank (ECB), Luis de Guindos, considers that the financial risks in the euro zone are being transferred to the housing market, with some countries in which "intense price falls" are already being seen.
"The biggest risks in the European financial system are not so much in the banking sector as in commercial real estate," Guindos said today, at a meeting organized by Kreab. There is already "a very intense fall in prices in some countries such as the Nordics", while in Germany "prices are slowing down, even at negative rates", she has warned.
In Spain, the latest data from the INE show that housing prices rose 3.6% in the second quarter compared to the same period in 2022, but the General Council of Notaries estimates that the declines have already begun in July, with a year-on-year drop of 4.6%.
For Guindos, this trend "can affect the exposure of the banking system and fundamentally the non-bank sector", which operate with "a lot of leverage" and which, in a context of falls in housing prices with increases in interest rates , can cause "tense situations."
Guindos also acknowledged that the return to EU fiscal rules next year does not seem "realistic", given that one of the objectives is to keep public debt below 60% of GDP. He has been in favor of a stability agreement "before the end of the year because then it will be difficult", in view of the changes in the European Commission and the elections to the European Parliament next year.
"There must be a sign of sustainability over time. For now the markets are very calm and the risk premium has remained very stable. We must take advantage of this bonanza to reach an agreement on the issue of fiscal rules," he said. indicated.
The vice president of the ECB has also asked the banks not to be "complacent" with the improvement of their balance sheets after the rate increases, and to maintain "prudence" when distributing dividends or purchasing own shares as a source of shareholder remuneration.
His forecast is that banks' provisions will grow and so will doubtful loans. "There is already a previous stage in which they have begun to rise," she warned when referring to the different phases to account for delinquencies. He has also predicted that "sooner or later the deposits will be better remunerated."
Guindos is not in favor of greater banking concentration in Spain because "the level of competition would be affected." Yes, mergers at the European level "make more sense", although "the problem remains that there is not a complete banking union."
Regarding interest rates, it adheres to the ECB's new script from last week, consisting of emphasizing the time factor over the percentage increase: "This level, if maintained for longer, will make a contribution substantial to the inflation target". In other words, rates will remain at 4.5% as long as it takes for inflation to approach 2%.
However, the issue that "has been most discussed" at the ECB council last Thursday actually has to do with the degree of transfer of monetary policy to the different economies of the euro zone. The ECB remains unclear about the effect of the rate increases, which "have been reflected very quickly in the banking channel", but not in other areas.
