MADRID (Reuters) - Consolidation is inevitable among banks in the euro zone, but low profitability and low valuations will make this very difficult, European Central Bank vice-president Luis de Guindos said on Monday.
Profitability across the euro zone bank sector is low and weakening economic growth in the region is expected to further dampen the banks' prospects.
Last month, the ECB cut rates deeper into negative territory and promised bond purchases with no end-date, in a bid to reverse the renewed slowdown in the euro zone's economy nearly a decade after the bloc's debt crisis.
Banks have long complained that negative rates weigh on their profits.
"Low profitability in the end leads to low valuation, making the inevitable consolidation of the sector very difficult," De Guindos said at a finance industry event in Madrid on Monday.
De Guindos also said the low profitability of euro zone banks was also related to costly structures and excess capacity.
At the same event, ECB policymaker Pablo Hernandez de Cos said that in the current macroeconomic environment, it was likely interest rates would stay lower for longer, squeezing financial margins further. De Cos called for a strengthening of banks' balance sheets and greater levels of efficiency.
Banks in Spain are still suffering from the after effects of reducing toxic legacy assets left on their balance sheets after the country's real estate bubble burst in 2007, while households are still cutting outstanding debts.
But De Cos, the current governor of the Bank of Spain, said that a recent reduction in toxic real estate assets had allowed Spanish banks to perform more favourably in this year's domestic stress tests than last year.
(Reporting By Jesús Aguado and Clara-Laeila Laudette; editing by Jane Merriman)
