EBA Report Reviews Funding Plans of Banks in EU
The European Banking Authority (EBA) published the annual update on the funding plans of banks in EU. The assessment in this report helps bank supervisors in EU to assess the sustainability of the main sources of funding at banks. The results of the assessment show the impact the pandemic had on the funding composition of banks and conclude that funding plans of banks in EU are poised to gradually return to a pre-pandemic funding composition by 2023; this implies a partial replacement of the central bank funding with market-based funding. The report is based on data submissions of banks in accordance with the EBA guidelines on funding plans.
Nearly 160 banks submitted their funding plans for the forecast period of 2021 to 2023. The report notes that total assets of banks increased by 8% in 2020, mainly driven by a surge in cash balances at central banks because of central bank support measures introduced in response to the pandemic. While loan growth was sluggish in 2020, banks expect loans to non-financial corporates and to households to grow by 4% per year over the forecast period 2021 to 2023. In 2020, client deposits surged and by the end of the year represented 73% of banks’ total funding sources. Banks’ reliance on public sector sources of funding (such as the Targeted Longer Term Refinancing Operations Program of ECB increased significantly and, as of December 2020, contributed almost 7% to the total funding of banks. While deposits will continue to be the main source of funding, banks plan to focus on issuing more debt instruments (mostly unsecured instruments) in the coming years, to make up for an expected decline in central bank funding but equally to comply with minimum requirement for own funds and eligible liabilities (MREL) requirements.
Over the three-year forecast period, banks plan to increase market-based funding by 12%, reaching EUR 4.2 trillion in 2023. Senior non-preferred instruments are expected to grow by 31% over the forecast period and regulatory capital instruments as well as senior unsecured instruments issued by the holding company instruments by 17%. Data also show that the spread between interest rates for client deposits and for loans to clients declined in 2020 and is expected to decline further in 2021. Despite the market turbulence in the first half of 2020, banks reported a decline in their market-based funding costs in 2020. In 2021, most banks expect funding conditions to remain very benign and costs to decline even further. The impact of the pandemic is visible when comparing bank forecasts for 2020 (provided in 2019 before the COVID outbreak) with actual figures as reported in December 2020. For all balance sheet positions that were selected for back-testing, significant gaps between forecasts and actual amounts were found for almost all banks in the sample.
Related Links
Keywords: Europe, EU, Banking, Funding Plans, COVID-19, MREL, Lending, TLTRO, Regulatory Capital, Basel, EBA
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Patrycja Oleksza
Applies proficiency and knowledge to regulatory capital and reporting analysis and coordinates business and product strategies in the banking technology area
Related Articles
US Agencies Issue Regulatory Updates, FDIC Launches Tech Sprint
The Board of Governors of the Federal Reserve System (FED) published the final rule that amends Regulation I to reduce the quarterly reporting burden for member banks by automating the application process for adjusting their subscriptions to the Federal Reserve Bank capital stock, except in the context of mergers.
EBA Issues Guide on Bank Resolvability, Consults on Transferability
The European Banking Authority (EBA) published its assessment of risks through the quarterly Risk Dashboard and the results of the Autumn edition of the Risk Assessment Questionnaire (RAQ).
MFSA Publishes CRD5 Updates and Supervisory Priorities for 2022
The Malta Financial Services Authority (MFSA) updated the guidelines on supervisory reporting requirements under the reporting framework 3.0.
HKMA Extends Repayment for Trade Facilities, Consults on Crypto-Assets
The Hong Kong Monetary Authority (HKMA) published a circular, along with the reporting form and instructions, for self-assessment, by authorized institutions, of compliance with the Code of Banking Practice 2021.
FCA Registers Securitization Repositories; PRA Issues 2022 Priorities
The Financial Conduct Authority (FCA) decided to register European DataWarehouse Ltd and SecRep Limited as securitization repositories under the UK Securitization Regulation, with effect from January 17, 2022.
EC Regulation Sets Out Methods for Measuring K-Factors Under IFR
The European Commission (EC) published the Delegated Regulation 2022/25, which supplements the Investment Firms Regulation (IFR or Regulation 2019/2033) with respect to the regulatory technical standards specifying the methods for measuring the K-factors referred to in Article 15 of the IFR.
BIS Studies How Platform Models Impact Financial Stability & Inclusion
The Bank of International Settlements (BIS) published a paper that assesses the ways in which platform-based business models can affect financial inclusion, competition, financial stability and consumer protection.
CBE Issues Additional Measures to Ease Disruptions from Pandemic
The Central Bank of Egypt (CBE) published a circular with instructions on emergency liquidity assistance to banks that are unable to meet their liquidity requirements.
ESAs Publish List of Financial Conglomerates for 2021
The European Supervisory Authorities (ESAs) published the list of identified financial conglomerates for 2021.
APRA Licenses Two More Banks, Reduces Committed Liquidity Facility
The Australian Prudential Regulation Authority (APRA) updated the list of authorized deposit-taking institutions, granting license to Barclays Bank PLC and Crédit Agricole Corporate and Investment Bank to operate as foreign authorized deposit-taking institutions under the Banking Act 1959.
