ECB: worsening financial stability conditions
ECB – European Central Bank: worsening financial stability conditions
Inflation risks are increasing as a result of rising energy and commodity prices due to the war between Russia and Ukraine, as highlighted by the European Central Bank (ECB) in the Financial Stability Review (FSR) of May 2022. “The terrible war in Ukraine has brought enormous human suffering”, stressed ECB’s Vice-President Luis de Guindos while explaining the economic consequences “It also increased risks to financial stability because of its impact on almost all aspects of economic activity and financing conditions”.
The report also explained that house prices in the euro area have continued to rise and that the growth of mortgage lending has accelerated, although “A large extension of fixed-rate mortgages should protect many borrowers from rising short-term interest rates”.
Some studies have shown that one of the few areas that experienced a sharp increase in the year of the pandemic was home mortgages. Together with the increase in the number of loans disbursed, this means that the value is not only driven by the increase in the price of apartments. This is especially true for Prague, which alone accounts for over 60% of the Czech residential market.
The various restrictions on the movement of persons have harmed foreign investors. On the other hand, the availability of local households and businesses is growing and, in line with what has happened in other European cities, they are looking for new investment opportunities. Based on data published monthly by the Fincentrum Hypoindex, the average mortgage credit rate has decreased, which has stimulated investment by the Czech population. This could be fatal for all non-financial corporations and sectors most affected by the pandemic. Meanwhile, a recent vulnerability analysis conducted by the ECB indicates that the euro area banking system should also withstand severe adverse economic scenarios.
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