UPDATE 1-ECB's Centeno says euro zone banks not showing signs of tension

(Adds quotes on inflation, rates) LISBON, March 24 (Reuters) - Europe's banking system is not showing signs of the growing financial tensions seen outside the euro zone, although it is not completely isolated, ECB Governing Council member Mario Centeno said on Friday. "I don't see these signs" of growing tensions, he told a news conference, but noting that the European Central Bank was constantly monitoring financial stability. "These situations are within the framework that would be expected in a turbulence that has been generated outside the euro area." Banking stocks fell sharply again on Friday, with European giants Deutsche Bank and UBS knocked by worries that regulators and central banks have not yet contained the worst shock to the sector since the 2008 global financial crisis. Centeno said there were "no issues in the euro area similar to those that existed in Credit Suisse" , and the balance sheet risk indicators of banks in the euro zone "aren't comparable to those at the time of the financial crisis". Capital levels and buffers were now higher and European banks' liquidity was "very comfortable", he added.

UBS agreed to take over Credit Suisse after the smaller Swiss bank was ensnared by market turmoil unleashed by the collapse of two U.S. lenders.

Despite calls by some investors to hold back on policy tightening until turmoil in the banking sector eases, the ECB raised its refinancing rate by 50 basis points to 3.50% last week, leaving the door open to future hikes as it forecast inflation would remain above its 2% target through 2025.

"It is necessary to show determination in fighting inflation, but we cannot overreact to the numbers that we have available," Centeno said. "We must be careful."

He predicted that the euro zone would have an interest rate higher than the neutral rate for some time. "The financial tightening situation will not end when the (ECB) interest rate hike cycle ends."

A neutral rate is one that neither restricts nor stimulates growth.

(Reporting by Sergio Goncalves and Andrei Khalip; editing by David Latona and Leslie Adler)

Reuters

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UPDATE 1-ECB&apos;s Centeno says euro zone banks not showing signs of tension

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UPDATE 1-ECB's Centeno says euro zone banks not showing signs of tension