ESAs risk update: Risks remain high in the EU financial system
Istanbul, May 2 (Hibya) - The three European Supervisory Authorities (EBA, EIOPA and ESMA - the ESAs) issued their Spring 2024 Joint Committee update on risks and vulnerabilities in the EU financial system. The risk update shows that risks remain elevated in the context of slowing growth, an uncertain interest rate environment and ongoing geopolitical tensions.
In recent months, financial markets have performed strongly in anticipation of potential interest rate cuts in 2024 in the EU and the US, despite the significant uncertainty surrounding these. This strong performance entails elevated risks of market corrections linked to unexpected events.
Credit risk is also expected to continue to increase as refinancing needs grow, particularly for high-yield debt and real estate. While asset quality has remained robust in the banking sector, it is expected to deteriorate as economic growth slows. The slowdown in real estate could also drive impairments at banks.
The insurance sector maintained solid capitalisation in 2023, with solvency ratios well above 200%. Defined benefit occupational pension schemes improved their financial position. The liquidity positions of insurers diminished slightly but remained ample. Challenges stemming from subdued growth and the potential repricing of risk premia nevertheless persist.
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