Low valuations for euro zone bank stocks appear to reflect concerns about credit risk and shareholder payouts, likely weighing on future credit growth via stricter terms for borrowers, the European Central Bank said on Monday.
Bank earnings have surged this year, partly on higher ECB interest rates that allowed lenders to beef up their net interest income, but stock market valuations have lagged behind and many banks appear to be trading at a discount to fundamentals.
“In the long run, this may adversely affect financial stability as banks which are valued by investors at a discount will likely find it more challenging to raise new equity when needed,” the ECB said in a Financial Stability Review article.
Read More : Euro Zone Bank Valuations Identified as Obstacle to Credit Growth by ECB