ECB warns of early signs of stress in Eurozone banks

The regulator anticipates that banks' profits will decline as a result of falling lending volumes and increased funding costs, so it has urged banks to make larger provisions to cover rising loan losses.

"A prolonged period of high interest rates is likely to lead to an increase in reserves, which in turn will hamper future profitability," the report stated.

The European Central Bank (ECB) noted that because of the banking system's "high levels of capital and liquidity" and profitability, which recently hit its highest point in over a decade, it was "well positioned" to handle declining asset quality.

source: ecb.europa.eu