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 ArticleRBI Amends Large Exposures Framework for Banks
A Consultative Group on Risk Management (CGRM) at the Bank for International Settlements (BIS) published a report that examines incorporation of climate risks into the international reserve management framework.
The European Banking Authority (EBA) published the final guidelines on liquidity requirements exemption for investment firms, updated version of its 5.2 filing rules document for supervisory reporting, and Single Rulebook Question and Answer (Q&A) updates in July 2022.
The Australian Prudential Regulation Authority (APRA) is seeking comments, until October 21, 2022, on the introduction of CPS 230, which is the new cross-industry prudential standard on operational risk management.
The European Commission published a Delegated Regulation 2022/1301 on the information to be provided in accordance with the simple, transparent, and standardized (STS) notification requirements for on-balance-sheet synthetic securitizations.
The Australian Prudential Regulation Authority (APRA) is announced revisions to the capital framework for authorized deposit-taking institutions to implement the "unquestionably strong" capital ratios and the Basel III reforms.
The European Banking Authority (EBA) published a report that examines the use of certain exemptions included in the large exposures regime under the Capital Requirements Regulation (CRR).
The Bank of England (BoE), the Prudential Regulation Authority (PRA), and the Financial Conduct Authority (FCA) published a joint discussion paper that sets out potential measures to oversee and strengthen the resilience of services provided by critical third parties to the financial sector in UK.
The Bank of England (BoE) issued a communication to firms to provide an update on the progress of the joint data transformation program—which is being led by BoE, the Financial Conduct Authority (FCA), and the industry—for the financial sector in UK.
The European Banking Authority (EBA) published the draft methodology, templates, and template guidance for the European Union-wide stress test in 2023.
The European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA) jointly published the final guidelines on common procedures and methodologies for the supervisory review and evaluation process (SREP) for investment firms.