The European Central Bank (ECB) is not doing enough to supervise credit risks in the banking sector, the European Court of Auditors (ECA) said on Friday.

“In spite of increased efforts in supervising banks’ credit risk and problem loans,” the ECB did not escalate measures to supervise banks with persistent credit risk issues, the budget watchdog said in a statement.

The European Union’s top budget auditor also said the ECB did not impose “proportionately higher capital requirements” on banks with higher risks.

There are more than 110 major banks in 21 EU countries, with 20 countries using the euro, and Bulgaria is under the ECB’s supervision regime, set up in response to the 2008 financial crisis.

Auditors criticised the lack of ECB action when banks were found not to have adequate processes to address loans that borrowers were not repaying.

The lack of staff in supervisory teams was also highlighted.

The Luxembourg-based auditors, however, acknowledged the fall in loans that were not repaid in banks under the ECB’s supervision.

In a series of recommendations, the ECA called for a stronger risk assessment of banks, a more efficient evaluation process, and the ECB to use all supervisory powers.

The ECB, in response, accepted the recommendations but stressed the financial regulator was attempting to give banks time to resolve poorly performing loans rather than offer special treatment.

(dpa/NAN)