Germany’s financial system still needs to fully digest higher interest rates so it’s too soon to declare that European Central Bank’s tightening has been well absorbed, the Bundesbank warned.

“It would be premature to sound the all-clear,” said Claudia Buch, the vice president of the German central bank, said on Thursday in Frankfurt. “After all, the effects of the higher interest rates have not yet fully materialized.”

Increasing risks to the macroeconomic outlook have barely been reflected in financial markets, she added, meaning there’s a “greater risk of market-price corrections and corresponding losses.” She also pointed to rising funding costs for banks posing a threat to their interest income.

ECB Vice President Luis de Guindos sounded a similar note on Wednesday, warning investors in a Bloomberg TV interview against “wishful thinking” on the economy. The euro-zone central bank also identified threats to the region’s financial system resulting from a slowing economy.

The Bundesbank said credit risk is elevated in commercial real estate, where rising rates have led to falling prices after they were passed on quickly to borrowers. Residential property poses more limited risks given stable labor markets, it said.

Germany’s long-term challenges presents an additional burden to the country’s financial system. With subdued growth prospects for the coming years, “credit risk is likely to occur in the medium term, especially for highly indebted enterprises that need to adjust considerably to the new framework conditions,” the Bundesbank said.

Buch will become the ECB’s top banking regulator as of January.

--With assistance from Sonja Wind.