MNI: ECB Mersch - Banks Must Consolidate, Refine Biz Models

By Christian Vits

     FRANKFURT (MNI) - European banks need to further consolidate and work on

their non-performing loans, European Central Bank Executive Board member Yves

Mersch said Monday.

     "Work remains to clear up the legacy of the crisis, particularly in terms

of the overhang of NPLs," Mersch said in a speech in Slovenia. 

     "Regulation alone is insufficient, and further effort is required of banks,

in terms of both consolidation and refining business models, to return the

sector to sustainable rates of profitability," he added.

     Europe remains overbanked, he noted. Although progress has been made on

this front, with 25 percent fewer credit institutions in the euro area now than

in 2008, "there is considerable scope for consolidation within some countries

and across borders," Mersch stressed.

     Payment services is a further area where regulatory advances are of

themselves insufficient to provide a working system that operates in a smooth

and efficient way, that is still safe and respects European privacy provisions,

he said.

     Banks face various challenges, such as the weak financial performance of

the sector, with low price-to-book ratios and meagre profitability, Mersch

underlined. 

     "Compared with the pre-crisis status quo, profound changes in the sector in

terms of structure and business models will be needed to tackle those

challenges," he said.

     The stock of NPLs remains high in some countries and continues to depress

bank profitability today, Mersch said. 

     At the end of 2016, the stock of gross NPLs in the EU banking sector was

around E1 trillion. "This NPL overhang is tying up bank capital in failed or

failing ventures and preventing the efficient flow of new lending to profitable

projects," he added.

--MNI Frankfurt Bureau; +49 69 97782671; email: christian.vits@marketnews.com

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