Rich banks, but risky mortgage rates.

The profits of European banks have never been so high since the creation of the Banking Union, but now institutions must carefully monitor their real estate exposures. These are some of the key concepts that Andrea Enria, the outgoing chairman of the ECB's Supervisory Council, conveyed to the European Parliament's Economic and Financial Affairs Committee in his latest chair's speech.

In general, the central banker emphasized that the old continent's credit institutions are in good shape. 'Despite the gradual repayment of ECB emergency funding, banks' liquidity remained strong, with an average liquidity coverage of 158%, well above regulatory requirements and levels''before the pandemic,'" the text said.

Not only that, but banks "have improved their profitability, with annualized return on equity reaching 10% in the first half of 2023, the highest since the beginning of the banking union, but still below the cost of equity, which remains above 13%. Banks' asset quality also continues to improve, as shown by delinquent loans (NPLs) totaling 1.8% in the second quarter of 2023, slightly below the level a year earlier. "

Take a look at the real estate market.

With regard to the excess profits tax introduced in Spain and then in Italy, Enria, responding to a question from a Greek parliamentarian at a meeting of the Commission on the Economy, stressed the importance that interventions by governments and parliaments in taxing banks "do not adversely affect profitability and capital appreciation".

The Italian banker recalled that he represents the supervisory authority, while taxes are the prerogative of governments and parliaments. "One has to be''cautious, I am not defending bank profits,' he said, 'but it is my duty to draw the attention of governments and parliaments to some facts'. Firstly, "there is a perception that banks are making excessive profits but are not really paying the cost of equity" and the banks themselves are seen as unattractive. In addition, if the perception is created that when profits are made, they are withdrawn by governments, European banks may lose their attractiveness in raising capital.