European banks should prepare for the possibility that any recession could be worse than baseline assumptions suggest, adding that it would be "prudent" to strengthen internal credit controls, ECB Banking Supervision chair Andrea Enria said in an interview on Thursday, even as profits improve.

“The recession, which is estimated now to be shallow and short, might prove to be deeper and longer than we currently expect, or the interest rate increase might be faster, stronger and longer in order to keep control of inflation," Enria said.

"European banks should still see, on average, their profits increasing and their capital position remaining solid," he said. "Of course, there could be distributional effects across banks, so there could be winners and losers, and that’s why we’re putting a lot of emphasis on the need to strengthen internal controls."

Supervisors are currently focusing on ensuring banks manage credit risk proactively, in order to avoid a new wave of non-performing loans, he said. "This time we are more prepared, and I think that we can avoid it if banks are focused on the issue.”