EBA published annual reports examining the funding plans and asset encumbrance of banks in EU. The funding plans assessment shows that banks plan to increase debt issuance over the next three years, particularly for unsecured debt instruments. The asset encumbrance report shows a stability of the overall weighted average asset encumbrance ratio in 2018, which is positive for the funding structure of the banking sector.
Funding plans report. The report analyzes the funding plans submitted by EU banks to the competent authorities and assesses their feasibility. The report sows that some improved fundamentals on banks’ part, such as decreasing non-performing loan ratios, progress to build Minimum Requirement for own funds and Eligible Liabilities (MREL) and sound capital positions, supported generally positive sentiment on bank funding markets. The new legislative framework on covered bonds is expected to promote covered bonds as a funding instrument across EU. National covered bond markets that have been less developed to date are also expected to benefit. The report shows that banks expect total assets to increase by 6.1% over the three-year forecast period from 2019 to 2021. Banks plan to issue more debt instruments in the coming years. The projected data show a concentration of debt issuance in 2020 and 2021. Most likely, the issuance would be driven by the conjunction of the maturities of central bank funding and the recently endorsed revised Bank Recovery and Resolution Directive (BRRD 2), which requires greater levels of subordination. Regarding market-based funding, banks assume that the cost of issuing debt securities will increase in 2019, reversing a downward trend observed over the last three years.
Asset encumbrance report. The report monitors the evolution of asset encumbrance and contributes to the ongoing assessment of the composition of funding sources across EU banks. The data show that the level of asset encumbrance remained stable in 2018 compared with 2017, at 27.9%, unchanged compared to December 2017. The stability of asset encumbrance is a positive sign for the funding structure of the banking sector. Nevertheless, the report shows a wide dispersion in the ratio, across both institutions and countries. Repo financing remains the most important source of asset encumbrance in EU, increasing its share to 30% from 27% in December 2017. The share of covered bonds (17%) and central bank funding (10%) as sources of asset encumbrance slightly decreased compared to last year. In terms of the business models of banks, the highest levels of encumbrance are reported by specialized mortgage institutions. As in previous years, a high level of encumbrance is reported in countries where there are large and established covered bond markets (for example, the Nordic countries), where there is a high share of central bank funding (for example, countries that were affected by the sovereign debt crisis, such as Greece and Italy) and where repurchase agreements have traditionally played a significant role in the financial markets (for example, the UK and France).
For the assessment of bank funding plans, 160 banks submitted their plans for funding over a forecast period of three years (2019 to 2021). The cut-off date for all funding plan data submitted by banks was May 27, 2019. The report on asset encumbrance is based on the data sample covering 181 banks for which EBA receives data based on the implementing technical standards on supervisory reporting.
Keywords: Europe, EU, Banking, Funding Plans, Asset Encumbrance, BRRD2, Covered Bonds, MREL, EBA
Previous ArticleAPRA Licenses 86400 Ltd as Authorized Deposit-Taking Institution
EU published Directive 2021/338, which amends the Markets in Financial Instruments Directive (MiFID) II and the Capital Requirements Directives (CRD 4 and 5) to facilitate recovery from the COVID-19 crisis.
The Standing Committee of the European Free Trade Association (EFTA) recommended that a systemic risk buffer level of 4.5% for domestic exposures can be considered appropriate for addressing the identified systemic risks to the stability of the financial system in Norway.
In a recent statement, PRA clarified its approach to the application of certain EU regulatory technical standards and EBA guidelines on standardized and internal ratings-based approaches to credit risk, following the end of the Brexit transition.
In a recently published letter addressed to the G20 finance ministers and central bank governors, the FSB Chair Randal K. Quarles has set out the key FSB priorities for 2021.
EU published, in the Official Journal of the European Union, a corrigendum to the revised Capital Requirements Regulation (CRR2 or Regulation 2019/876).
ESAs published a joint supervisory statement on the effective and consistent application and on national supervision of the regulation on sustainability-related disclosures in the financial services sector (SFDR).
EC published a public consultation on the review of crisis management and deposit insurance frameworks in EU.
HKMA announced that enhancements will be made to the Special 100% Loan Guarantee of the SME Financing Guarantee Scheme (SFGS) and the application period will be extended to December 31, 2021.
EBA launched consultations on the regulatory and implementing technical standards on cooperation and information exchange between competent authorities involved in prudential supervision of investment firms.
BoE issued a letter to the CEOs of eight major UK banks that are in scope of the first Resolvability Assessment Framework (RAF) reporting and disclosure cycle.