Featured Product

    EBA Publishes Risk Dashboard for Third Quarter of 2019

    January 08, 2020

    EBA published the risk dashboard for the third quarter of 2019 and the results of the semi-annual Risk Assessment Questionnaire for Autumn 2019. The dashboard summarizes the key risks and vulnerabilities in the EU banking sector. EBA also published the results of its Risk Assessment Questionnaire. The risk dashboard shows that the capital ratios of banks in EU have remained stable for the third consecutive quarter and the asset quality of banks continued to improve, while analysts expect increased issuance of bail in-able debt.

    The risk dashboard is based on a sample of 147 banks, covering more than 80% of the banking sector (by total assets) in EU, at the highest level of consolidation. The following are the key results of the risk assessment:

    • The capital ratios of banks in EU remained stable for the third quarter in a row. The common equity tier 1 ratio remained at 14.4% on a fully loaded basis, with the increase in capital compensated by a parallel expansion of risk exposure amounts. 
    • Asset quality kept on improving, though at a slower pace. The ratio of nonperforming loans also declined from 3.0% to 2.9%. Looking forward, the percentage of banks expecting a deterioration in asset quality further increased, particularly for lending to small and medium enterprises (SME) and commercial real estate financing. Notwithstanding this outlook, banks still plan to increase their SME financing as well as consumer lending.
    • On the liability side, banks mainly intend to attain more bail in-able instruments (senior non-preferred and Holding Company bonds) as well as retail deposits. Analysts also expect increased issuance of bail in-able debt. However, contrary to banks, the percentage of analysts expecting more preferred senior unsecured funding strongly increased. Positive expectations about the placement of minimum requirement for own funds and Eligible Liabilities (MREL) instruments come in parallel to decreasing concerns about the issuance of MREL-eligible instruments. The banks pointing to pricing and uncertainty on required MREL amount as constraints for MREL-eligible issuance fell to 50% and 30%, respectively.

    The results of the Risk Assessment Questionnaire cover bank and market analyst expectations on future trends and developments, with 65 banks and 13 market analysts submitting their answers. The results of the Risk Assessment Questionnaire survey indicate that, in response to a bleak outlook for bank profitability, banks are targeting operating expenses and fee and commission income. On a positive note, the low interest rate environment reduced concerns about pricing obstacles to MREL issuance. Similarly, the recent approval of the Banking Package seems to have reduced the percentage of banks citing regulatory uncertainty about MREL requirements as a concern. However, banks and analysts appear increasingly pessimistic about asset quality developments, especially for commercial real estate and SME exposures. Additionally, the percentage of banks and analysts expecting an increase in operational risk remained roughly unchanged (55% in both cases). Banks point to cyber risk and data security as the key drivers of operational risk while analysts identify money laundering and terrorist financing risks as well as conduct and legal risks as the main drivers of operational risk. 

     

    Related Links

    Keywords: Europe, EU, Banking, Risk Dashboard, Risk Assessment Questionnaire, CET 1, Basel III, NPLs, Credit Risk, MREL, Operational Risk, EBA

    Featured Experts
    Related Articles
    News

    HKMA Finalizes Policy Modules on Group-Wide Approach and Remuneration

    The Hong Kong Monetary Authority (HKMA) revised the Supervisory Policy Manual module CG-5 that sets out guidelines on a sound remuneration system for authorized institutions.

    July 29, 2021 WebPage Regulatory News
    News

    EBA Guide to Monitor Threshold for Intermediate Parent Undertakings

    The European Banking Authority (EBA) published the final guidelines on the monitoring of the threshold and other procedural aspects on the establishment of intermediate parent undertakings in European Union (EU), as laid down in the Capital Requirements Directive (CRD).

    July 28, 2021 WebPage Regulatory News
    News

    PRA Finalizes Approach to Supervision of International Banks

    In a recent Market Notice, the Bank of England (BoE) confirmed that green gilts will have equivalent eligibility to existing gilts in its market operations.

    July 26, 2021 WebPage Regulatory News
    News

    FCA Issues PS21/9 on Implementation of Investment Firms Regime

    The Financial Conduct Authority (FCA) published the policy statement PS21/9 on implementation of the Investment Firms Prudential Regime.

    July 26, 2021 WebPage Regulatory News
    News

    EBA Proposes Regulatory Standards to Identify Shadow Banking Entities

    The European Banking Authority (EBA) proposed regulatory technical standards that set out criteria for identifying shadow banking entities for the purpose of reporting large exposures.

    July 26, 2021 WebPage Regulatory News
    News

    IOSCO Proposes Recommendations on ESG Ratings and Data Providers

    The Board of the International Organization of Securities Commissions (IOSCO) proposed a set of recommendations on the environmental, social, and governance (ESG) ratings and data providers.

    July 26, 2021 WebPage Regulatory News
    News

    ESMA Group Issues Recommendations on RFR Switch in Interdealer Market

    The European Securities and Markets Authority (ESMA) published recommendations from the Working Group on Euro Risk-Free Rates (RFR) on the switch to risk-free rates in the interdealer market.

    July 26, 2021 WebPage Regulatory News
    News

    ECB Study Assesses Impact of Basel III Finalization Package

    The European Central Bank (ECB) published a paper as well as an article in the July Macroprudential Bulletin, both of which offer insights on the assessment of the impact of Basel III finalization package on the euro area.

    July 26, 2021 WebPage Regulatory News
    News

    ISDA Finds FRTB Results in Higher Capital Charges for Carbon Trading

    The International Swaps and Derivatives Association (ISDA) published a paper that explores the impact of the Fundamental Review of the Trading Book (FRTB) on the trading of carbon certificates.

    July 26, 2021 WebPage Regulatory News
    News

    PRA Updates Remuneration Policy Statement Templates and Tables

    The Prudential Regulation Authority (PRA) published the remuneration policy self-assessment templates and tables on strengthening accountability.

    July 26, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 7311