The ECB has found shortcomings of more than €10 billion in banks' loan books.
In its annual supervision report, the central bank said its on-site inspections of eurozone banks' books had uncovered shortcomings in how some banks define and/or identify default or nonperforming exposures as well as weaknesses in the way they monitor high-risk borrowers.
It discovered "financial impacts" in excess of €10 billion and said there is a need for banks to set aside more provisions.
The review also found miscalculations in some banks' provisions, identified inadequacies in their credit-granting processes as well as deficiencies in their internal governance and risk management controls, among other areas.
The review is part of the ECB's efforts to tackle European banks' roughly €800 billion stock of nonperforming loans, much of which accumulated during the global financial crisis.
"[B]anks are making progress: Since early 2015, NPLs have fallen by about €200 billion. This is encouraging, but it's not enough," ECB Supervisory Board Chair Danièle Nouy said, while noting that banks should also deal with potential new bad loans.
Earlier in March, the ECB outlined a series of measures that would require banks to set aside more capital to cover the risk of new loans that turn sour and encourage them to reduce their existing books of NPLs.
Nouy also repeated calls for banks to accelerate efforts to clean up their balance sheets in order to become more profitable. "[T]he good times won't last forever, so banks should make the most of them while they can. When a downturn comes, it will become much more difficult to reduce NPLs," she said.