SENSITIVITY TEST. Forewarned is forearmed. Hence European Central Bank supervisory chief Andrea Enria’s warning on Tuesday about banks’ exposure to credit risk. One particular concern is that a large share of loans had shifted from being classified as “performing” directly to “non-performing”, without first passing through the intermediate “underperforming” stage. This could suggest that banks’ early warning systems are ineffective, Enria said. European lenders may avoid the ECB’s worst-case scenario: that non-performing loans hit 1.4 trillion euros by end-2022, surpassing a 2016 peak of around 1 trillion euros. Even so, bankruptcies will rebound from last year’s unusually low levels when government support is withdrawn. Enria said the ECB would be ready to offer banks more time to rebuild their capital buffers if that would help them process the expected increase in bad loans. Given how much money the ECB is throwing at the euro zone economy to stimulate recovery, such flexibility would be unsurprising. (By Swaha Pattanaik)