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FRANKFURT: The European Central Bank has told banks to buckle up and prepare for a bumpy road ahead as the Ukraine war hits the economy and a sudden surge in interest rates makes markets more volatile, the ECB top supervisor Andrea Enria said on Wednesday.

Euro zone banks were just coming out of emergency measures imposed at the height of the coronavirus pandemic, including a cap on dividend payouts, when the conflict broke out in February and the economic outlook darkened again.

Enria said supervisors had now told banks to “reassess” their expectations, including on how much capital they will have at their disposal.

ECB policymaker says rates will rise ‘very soon’

“We have asked banks to reassess their projections and capital trajectories in the light of the new macroeconomic picture, also considering adverse scenarios,” Enria told Italian daily Repubblica.

In slides prepared for a meeting with the Italian banking lobby, Enria said higher energy and commodity prices were driving up inflation and slowing growth, overshadowing a boost to bank margins from rising interest rates.

On the upside, he said banks had shown resilience in 2021 and continued to clean up their balance sheet, despite an increase in corporate defaults in the last three months of the year when COVID-19 support measures were retired.

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