Low rates taking a toll on euro zone banks: ECB's Nouy

August 31, 2016 6:06 AM EDT

The headquarters of the European Central Bank (ECB) are illuminated with a giant euro sign at the start of the "Luminale, light and building" event in Frankfurt, Germany, March 12, 2016. To match Insight GERMANY-BANKS/ REUTERS/Kai Pfaffenbach/File Phot

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VILNIUS (Reuters) - Low interest rates, once a boon for euro zone banks, are becoming a drag on profitability, European Central Bank supervisor Daniele Nouy told Lithuanian newspaper Verslo žinios on Wednesday.

Low rates initially helped banks by reducing funding costs and improving clients' credit profile but they are now curtailing profitability, Nouy told the newspaper in an interview.

"It is becoming clear now that the low interest rate environment takes its toll and limits banks’ profits," Nouy said. "Therefore, for the situation to change for the better, we need to see more growth in the euro area."

"Investors can no longer expect the same high return on equity as they received before the banking crisis, but they do need their returns to be adequate," she added.

(Reporting by Andrius Sytas; Writing by Balazs Koranyi; Editing by Toby Chopra)

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