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 issued a revised list of validation rules with respect to the implementing technical standards on supervisory reporting.
EBA published its response to the call for advice of EC on ways to strengthen the EU legal framework on anti-money laundering and countering the financing of terrorism (AML/CFT).
NGFS published a paper on the overview of environmental risk analysis by financial institutions and an occasional paper on the case studies on environmental risk analysis methodologies.
MAS published the guidelines on individual accountability and conduct at financial institutions.
APRA published final versions of the prudential standard APS 220 on credit quality and the reporting standard ARS 923.2 on repayment deferrals.
SRB published two articles, with one article discussing the framework in place to safeguard financial stability amid crisis and the other article outlining the path to a harmonized and predictable liquidation regime.
FSB hosted a virtual workshop as part of the consultation process for its evaluation of the too-big-to-fail reforms.
ECB updated the list of supervised entities in EU, with the number of significant supervised entities being 115.
OSFI published the key findings of a study on third-party risk management.
FSB is extending the implementation timeline, by one year, for the minimum haircut standards for non-centrally cleared securities financing transactions or SFTs.