Some eurozone banks too optimistic in valuing commercial property: ECB
Euro area bank earnings have reached multi-year highs
Some of the euro zone's top banks may be inflating the value of their commercial property holdings, according to a new report from the European Central Bank (ECB).
Commercial property has become a weak link in the eurozone's financial system
The ECB's findings come as euro area bank earnings have reached multi-year highs, while bank equity valuations have not kept pace. This suggests that investors are becoming increasingly concerned about the value of banks' commercial property holdings.
Commercial property has become a major source of losses for eurozone banks in recent years, as the value of these properties has fallen sharply since the 2008 financial crisis.
The ECB is growing more confident about cutting interest rates
The ECB's findings are likely to add to concerns about the health of the eurozone's financial system. The ECB is currently considering cutting interest rates in an effort to boost economic growth, but it is worried that doing so could lead to further losses on banks' commercial property holdings.
The ECB's inspectors found that some banks were relying on transaction data from 2021 or earlier to base their valuations of commercial property. This suggests that these banks are not taking into account the recent decline in the value of these properties.
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