EBA published two reports examining the funding plans and asset encumbrance of banks in EU. For this assessment, 159 banks submitted their plans for funding over a forecast period of three years (2018 to 2020). The results of the assessment show that banks plan to match the asset side increase in the forecast years by a growth in client deposits as well as market-based funding.
The report on funding plans reveals that total assets are projected to grow, on average, by 6.2% by 2020. The main drivers for asset growth are loans to households and to non-financial corporates. Banks expect to increase client deposits and long-term debt funding while short-term debt and repo funding are expected to fall. The projected data shows a concentration of debt securities issuance in 2019 and 2020. Data also show that the spread between interest rates for client deposits and for loans to clients declined in 2017 and most banks expect the spread to decline even further in 2018. On the cost of funding, banks seem optimistic as they assume their costs of long-term market-based funding in 2018 will remain at 2017 levels. The report suggests that the evolution of banks' interest spread and market-based funding costs should be closely monitored, particularly for banks that are under pressure to increase profitability or without access to market-based funding at reasonable rates.
The report on asset encumbrance shows that in December 2017 the overall weighted average asset encumbrance ratio stood at 27.9%, compared to 26.6% in 2016. The modest increase of the encumbrance ratio is not an issue of immediate concern in the funding structure of EU banks. Additionally, repos, covered bonds, and over-the-counter derivatives are among the main source of asset encumbrance. Banks in countries that were more affected by the sovereign debt crisis still have high levels but have shown a decrease in the volume of encumbrance, which could reflect a general improvement in the funding situation in these countries. These reports aim to provide important information for EU supervisors to assess the sustainability of banks' main sources of funding of banks.
Keywords: Europe, EU, Banking, Asset Encumbrance, Funding Plans, EBA
Previous ArticleESMA Chair Speaks on Technological Transformation of Capital Markets
EBA published phase 2 of the technical package on the reporting framework 2.10, providing the technical tools and specifications for implementation of EBA reporting requirements.
FASB issued a proposed Accounting Standards Update that would grant insurance companies, adversely affected by the COVID-19 pandemic, an additional year to implement the Accounting Standards Update No. 2018-12 on targeted improvements to accounting for long-duration insurance contracts, or LDTI (Topic 944).
APRA updated the regulatory approach for loans subject to repayment deferrals amid the COVID-19 crisis.
BCBS and FSB published a report on supervisory issues associated with benchmark transition.
IAIS published a report on supervisory issues associated with benchmark transition from an insurance perspective.
ESMA updated the reporting manual on the European Single Electronic Format (ESEF).
EBA published a statement on resolution planning in light of the COVID-19 pandemic.
BCBS Finalizes Revisions to Credit Valuation Adjustment Risk Framework
ECB published a guideline (2020/97), in the Official Journal of European Union, on the definition of materiality threshold for credit obligations past due for less significant institutions.
FED temporarily revised the capital assessments and stress testing reports (FR Y-14A/Q/M) to implement the changes in response to the COVID-19 pandemic.