A combination of weak economic growth and high debt repayments is putting European banks under pressure, a new report has stated.
The latest Global Financial Stability study by the International Monetary Fund (IMF) has called on financiers on the continent to start a period of deleveraging sooner rather than later to improve their balance sheets.
By increasing their capital and reducing assets, lenders will improve their monetary situation while also winning back the confidence of consumers, the IMF indicated.
In recent months, officials have attempted to solidify the region's fiscal system through a number of different policy moves, including the European Central Bank's long-term refinancing operation.
However, Jose Vinals, financial counsellor and head of the IMF's Monetary and Capital Markets Department, believes that more needs to be done to capitalize on these measures.
"Some deleveraging is healthy, as banks cut noncore activities and reduce reliance on wholesale funding, making their balance sheets more robust," he noted.
By Claire Archer