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Euro zone banks cut stock of soured loans, despite looming recession

Headquarters of the European Central Bank (ECB) is seen illuminated with a giant euro sign at the start of the "Luminale, light and building" event in Frankfurt

FRANKFURT (Reuters) - The euro zone's biggest banks managed to reduce soured loans further in the third quarter, despite a looming recession that is bound to worsen credit quality in the months ahead, European Central Bank data showed on Tuesday.

The ECB has long warned that an economic downturn coupled with soaring interest rates is bound to hit lenders, who still appear complacent, especially in setting aside provisions and recognising bad debt.

But hard data so far is not showing dramatic changes and banks' stock of non-performing loans fell to 2.29% in the third quarter from 2.35% three months earlier, fresh supervisory data showed.

From more than 900 billion euros after the bloc's debt crisis nearly a decade ago, non-performing loans are now down to 348 billion euros, the lowest level since the ECB started collecting data in 2015.

But in potential evidence of the ECB's concerns, impairment and provision charges actually dropped in the first three quarters of the year, to 36.9 billion euros from 37.1 billion euros a year earlier.

That may need to change as sky-high energy prices are depleting the bloc's purchasing power and a recession over the winter months is almost certain.

Meanwhile banks' total capital ratio deteriorated slightly, to 18.68% from 18.86% three months earlier.

(Reporting by Balazs Koranyi; editing by Jason Neely)