The Governor of the Bank of Greece, Yannis Stournaras, warned of challenges to the EU banking system in his speech at the "NPL Meeting 2024: Step Forward" conference of Banca Ifis held in Lake Como. 

Risks to financial stability are increasing, the BoE governor pointed out. As he explained, geopolitical risk has remained high for some time since Russia's invasion of Ukraine and is further fuelled by tensions in the Middle East. At the same time, political developments in the US and the EU are also creating uncertainty. 

At the same time, he noted that the potential reassessment of risk premiums following any sudden turnaround in market sentiment could put pressure on asset prices with potential implications for the non-bank financial institution sector. 

Rising interest rates in the recent period, along with high inflation rates, have put pressure on the balance sheets of some corporations and households, which means that the possibility that European banks could face a deterioration in their asset quality and the need for increased provisioning cannot be ruled out, it went on to say. 

A further risk comes from the combination of low economic growth rates and high interest rates, which could adversely affect the demand for new loans and the implementation of banks' business plans.

It also highlighted the weakening dynamics of the real estate market in the euro area, noting that a decline in real estate prices could expose some construction groups to losses and subsequently affect the cost of credit risk for some European banks. 

Finally, he noted that several new risks have recently emerged, such as those stemming from climate change, but also the risk of cyber-attacks, which is closely linked to the growing geopolitical risk.

In this context, he underlined that "there is no room for complacency,"  adding that "supervisors are called upon to ensure that financial institutions make prudent business decisions, hold adequate capital buffers and liquidity reserves, and apply the highest possible standards of governance. Macro-prudential authorities should also maintain capital buffer requirements in order to increase the resilience of the system."