Negative interest rates have their uses, economic growth needed, ECB's Coeure says

Economic growth was urgently needed to help reduce joblessness in the aftermath of the once-in-generation crisis and negative interest rates were not responsible for declining bank profitability, ECB governing council member Benoit Coeure said.

"The euro area is still recovering from a once-in-a-generation economic and financial crisis that has left deep scars on the economy," Coeure said, according to remarks prepared for a speech and posted to the central bank’s website on Wednesday.

“[The Eurozone] urgently needs higher growth to bring down high unemployment, to deleverage the economy and to raise inflation back to our price stability objective," he added.

Coeure also took aim at criticism of the ECB’s negative interest rate policy.

Many banks had been able to “more than offset” declining interest revenues via increased lending volumes, lower interest rate expenses and risk provisions as well as capital gains, he said.

Negative interest rates were also “complementary” to the central bank’s asset purchase programme which had a clearly positive effect on asset prices, credit risk and intermediation volumes, the policymaker added.

"This has to be set against the direct costs from our measures to net interest margins."

ECB sees scope for banking M&A

“To reduce uncertainty, both policymakers and financial institutions need to play their part," Coeure said.

Markets had focused, in particular, on those banks which were perceived to have high stocks of non-performing loans and those perceived to have unsustainable business models.

As a priority, banks needed to move “decisively” to deal with so-called legacy assets.

“Progress in NPL resolution is still slow when compared with the volume of problem loans,” he said.

Furthermore, some banks need to do more to lessen the perception of having a risky business model; carving-out certain assets might enable some to free up resources to focus on developing new businesses.

There was still also scope for banks to reduce their operating costs further and find ways to boost non-interest income.

Further consolidation in the sector, in particular, remained one piece of ‘low-hanging fruit’ in the sector.

“The fact that we now have a European supervisory and resolution regime presents the ideal conditions for banks to capitalise on new cross-border M&A opportunities.”