(Bloomberg) — The European Central Bank is signaling to lenders that they may face higher capital requirements if they have an insufficient handle on risks they face from commercial real estate, according to people familiar with the matter.
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The watchdog is placing greater emphasis on the management of commercial property risks, in a dialog with banks that comes before the annual bar for their financial strength is set, said the people, who asked to remain anonymous as the discussions are private.
While individual requirements would probably only apply next year, senior officials view the early warnings as a way to limit losses from the asset class.
An ECB spokesman declined to comment. The watchdog has said that addressing banks’ shortcomings in credit risk management is one of its top priorities.
Commercial real estate markets have been in a sharp decline as last year’s spike in interest rates compounded challenges from the shift to work-from-home and changing retail behavior. The ECB has scrutinized banks’ lending practices for several years and has repeatedly faulted them for taking too much risk, including in December when it cited evidence that lenders were…
