‘We are in a transition’ to better world in banking

The steps taken to repairthe banking system may temporarily constrain lending, but “we are in a transition to a better world in banking,” said Diego Rodriguez Palenzuela, an adviser to the Directorate Monetary Policy at the ECB.

Speaking at the Irish Banking Federation (IBF) conference, Mr Palenzuela, highlighted the challenges facing the banking sector as it attempts to return to profitability. These include deleveraging; managing loan arrears; the exposure to sovereign debt; and, funding challenges.

Mr Palenzuela, who was the ECB’s lead official in troika negotiations for Ireland, said the comprehensive review of the banking system, which will take place over the next 12 months, will create much needed transparency for the sector and for investors. He declined to comment on the likely outcome of the asset quality review or the stress tests.