ECB could hike rates two more times this year. Credit: MichaelM from Pixabay.

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The European Central Bank (ECB) has asked eurozone banks to review their capital position as the industry faces the fallout from the Russia-Ukraine war. 

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Banks in the region have been asked by the regulator to assess their exposure to energy-intensive industries, Reuters reported citing ECB supervisor Andrea Enria, who spoke at a conference in Brussels.

As per the report, over the recent year, lenders have built sufficient capital and they will also benefit from the rising interest rates.

However, soaring energy prices and an almost inevitable recession will certainly impact the sector. 

“We are pushing banks to focus very much on their concentration of exposures towards sectors which are particularly dependent on energy and fragile to energy shocks,” Enria was quoted by the news agency as saying. 

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“So, we are asking banks to review their capital projections under severe, adverse scenarios and we will engage in a dialogue with them.”

Notably, in the last two meetings, the central bank has raised rates by a combined 125 basis points, which is the most aggressive hike in the regulator’s history. 

Two more rate hikes are likely to follow this year. 

The ECB supervisor noted that entities operating in consumer finance, residential real estate and commercial real estate are particularly exposed to policy tightening. 

In April this year, Enria said large banks in the eurozone can meet their capital requirements even if they have to completely write-off of their exposure to Russia.