Jacob Gyntelberg's interview with Ziarul Financiar: The high level of macroeconomic uncertainty we are currently experiencing shows how important it is to remain vigilant.

  • Interview
  • 2 OCTOBER 2023

The high level of macroeconomic uncertainty we are currently experiencing shows how important it is to remain vigilant. Both supervisory authorities and banks should be prepared for a possible worsening of economic conditions.

‘As the EBA stress test shows, EU/EEA banks are well capitalised. In addition, most banks hold substantial liquidity buffers. At the same time, there is growing economic uncertainty. But even in the event of a major economic downturn, there do not seem to be any concrete indications so far that a financial crisis will affect the EU/EEA banking sector in the coming months’, maintains Jacob Gyntelberg, Director at the European Banking Authority (EBA).
 

While banks in the European Union (EU) remain sufficiently capitalised to continue to support the economy even in times of severe stress, the high level of macroeconomic uncertainty we are currently experiencing shows how important it is to remain vigilant and that both supervisory authorities and banks should be prepared for a possible worsening of economic conditions, Jacob Gyntelberg, Director of Economic and Risk Analysis at the European Banking Authority (EBA), told ZF.

However, he believes that even in the event of a major economic downturn, there do not seem to be any concrete indications so far that a financial crisis will affect the EU/EEA banking sector in the coming months.

‘As the EBA stress test shows, EU/EEA banks are well capitalised. In addition, most banks hold substantial liquidity buffers. At the same time, there is growing economic uncertainty. But even in the event of a major economic downturn, there do not seem to be any concrete indications so far that a financial crisis will affect the EU/EEA banking sector in the coming months,’ maintained Jacob Gyntelberg in an exclusive interview with ZF.

The results of this year’s stress tests conducted by the EBA showed that European banks remain resilient in an adverse scenario combining elements such as a severe recession in the EU and globally and rising interest rates. In part, this resilience of EU banks reflects the strong capital position at the beginning of the stress test.

‘Despite combined losses of EUR 496 billion, EU banks remain sufficiently capitalised to continue to support the economy even in times of severe stress. Nevertheless, the high level of macroeconomic uncertainty we are currently experiencing shows how important it is to remain vigilant. Both supervisory authorities and banks should be prepared for a possible worsening of economic conditions,’ said the director at the EBA, the pan-European banking regulator set up more than a decade ago to identify weaknesses in European banks and conduct stress tests.

Periodic stress tests for banks were introduced in Europe after the global financial crisis of 2008/2009. The EU-wide stress test provides supervisors, banks and other market participants with a common analytical framework to compare and assess consistently the resilience of EU banks to adverse market developments and shocks.

Talking about the challenges that may lie ahead for banks, Jacob Gyntelberg observed that a key question is how asset quality will evolve in the coming period – in other words, whether there will be a recession that will negatively affect the economy and, as such, lenders, or whether the impact will be limited to certain sectors and portfolios. At the same time, inflation is also putting pressure on banks’ costs, he pointed out.

‘Profitability has been on an upward path in the last few quarters, supported by rising interest rates, which positively influenced the net interest income. However, rates may remain higher for longer – as is currently assumed in the financial markets – and will decrease again at some point. There may not be as much room to further improve net interest income as the cost of funding rises. One example is deposit rates, where, for the time being, banks have kept deposit rate increases under control. However, this is already changing. One of the questions will be whether banks will be able to maintain their net interest income at current levels. Another key question is surely how asset quality will evolve – will there be a recession that will negatively affect the economy and, as such, retail and corporate lenders, or will the impact will be limited to certain sectors and portfolios? Inflation also puts pressure on banks’ costs, in addition to potentially affecting asset quality. Finally, there are also cyber and ESG risks, which also remain significant’, explained Jacob Gyntelberg, who, prior to joining the EBA, worked for almost 10 years in the private sector – most recently as Deputy Chief Risk Officer for the Nordea Group

Who is JACOB GYNTELBERG?

  • He is the Director of Economic Analysis and Risk at the European Banking Authority (EBA). The department is responsible for conducting EU-wide stress tests at the EBA, as well as risk and vulnerability analyses in the EU banking sector, impact assessments of regulatory and supervisory measures and coordination of ESG-related activities within the EBA.
  • Currently, he leads the EBA units in charge of stress testing and macroprudential issues.
  • Before joining the EBA, Jacob Gyntelberg worked for almost 10 years in the private sector – most recently as Deputy Chief Risk Officer for the Nordea Group. In addition, he worked for more than 13 years at the Bank for International Settlements (BIS), most recently as Principal Economist.
  • Jacob holds a PhD in Economics from the University of Copenhagen
JACOB GYNTELBERG, Director at the European Banking Authority (EBA):
One of the questions will be whether banks will be able to maintain their net interest income at current levels. Another key question is surely how asset quality will evolve – will there be a recession that will negatively affect the economy and, as such, lenders, or will the impact will be limited to certain sectors and portfolios? Inflation also puts pressure on banks’ costs, in addition to potentially affecting asset quality.

The interview was conducted by Claudia Madrega

Ziarul Financiar (Romania)