EBA published bank-by-bank data from the seventh transparency exercise in EU. This additional data disclosure comes as a response to the outbreak of COVID-19 and provides market participants with bank-level data as of December 31, 2019, prior to the start of the crisis. Along with the data set, EBA also provided a document highlighting the key statistics derived from the data set and a wide range of interactive tools that allow users to compare and visualize data by using maps at a country and a bank-by-bank level. The data confirm that the banking sector in EU entered the crisis with solid capital positions and improved asset quality, but also shows the significant dispersion across banks.
In the context of an unprecedented health crisis, EU-wide transparency data confirms banks entered this challenging period in a stronger position than in previous crises. Compared with the Global Financial Crisis in 2008-2009, banks now hold larger capital and liquidity buffers. EU banks reported increasing capital ratios in 2019. The EU weighted-average common equity tier 1 (CET1) fully loaded capital ratio was at 14.8% as of the fourth quarter of 2019, nearly 40 bps higher than in the third quarter of 2019. The trend was supported by higher capital, but also contracting risk exposure amounts. As of December 2019, 75% of the banks reported a CET1 fully loaded capital ratio above 13.4% and all banks reported a ratio above 11%, well above the regulatory requirements.
The EU weighted fully phased-in leverage ratio stood at 5.5% as of December 2019. The leverage ratio increased by 30 bps compared to the previous quarter, driven by rising capital and declining exposures. The lowest reported leverage ratio was 4.7% at country level and 1.6% at bank level. The asset quality of EU banks has been on an improving trend over the last few years. As of the fourth quarter of 2019, the EU weighted average nonperforming loan ratio declined to 2.7%, 20 bps lower than in the third quarter of 2019. The ratio in the fourth quarter of 2019 was the lowest since the EBA introduced a harmonized definition of nonperforming loans across European countries. Dispersion in the nonperforming loan ratio across countries remained wide, with few banks still reporting double-digit ratios, although in the last quarter the inter-quartile range compressed by 80 bps, to 3.1%.
Earlier, EBA had postponed the EU-wide stress test exercise to 2021 to allow banks to focus on and ensure continuity of their core operations, including support for their customers. The Spring 2020 EU-wide transparency exercise comes as an exceptional disclosure in response to the outbreak of COVID-19. After postponing the EU-wide Stress Test to 2021, the Board of Supervisors agreed on an additional EU-wide transparency exercise to be carried out with the aim of providing updated information on bank exposures and asset quality to market participants. The transparency exercise is part of the ongoing efforts of EBA to foster transparency and market discipline in the EU financial market and complements banks’ own Pillar 3 disclosures, as laid down in the EU Capital Requirements Directive. Unlike stress tests, transparency exercises are purely disclosure exercises where only bank-by-bank data are published and no shocks are applied to the actual data. The Spring 2020 transparency exercise covers 127 banks from 27 European economic area countries and data is disclosed at the highest level of consolidation as of September 2019 and December 2019. The transparency exercise fully relies on supervisory reporting data.
Keywords: Europe, EU, Banking, COVID-19, Spring 2020 Transparency Exercise, Transparency, Basel, Reporting, EBA
Previous ArticleUS Agencies Ease Requirement for Market Risk Amid COVID Volatility
The European Banking Authority (EBA) has published the final templates, and the associated guidance, for collecting climate-related data for the one-off Fit-for-55 climate risk scenario analysis.
The European Banking Authority (EBA) recently published a report that recommends enhancements to the Pillar 1 framework, under the prudential rules, to capture environmental and social risks.
As a follow on from its prudential standard on the treatment of crypto-asset exposures, the Basel Committee on Banking Supervision (BCBS) proposed disclosure requirements for crypto-asset exposures of banks.
The Basel Committee on Banking Supervision (BCBS) and the European Banking Authority (EBA) have published results of the Basel III monitoring exercise.
The Prudential Regulation Authority (PRA) recently issued a few regulatory updates for banks, with the updated Basel implementation timelines being the key among them.
The U.S. Department of the Treasury has recently set out the principles for net-zero financing and investment.
The European Commission (EC) launched a stakeholder survey on the draft International Guiding Principles for organizations developing advanced artificial intelligence (AI) systems.
The finalization of the two sustainability disclosure standards—IFRS S1 and IFRS S2—is expected to be a significant step forward in the harmonization of sustainability disclosures worldwide.
Decentralized finance (DeFi) is expected to increase in prominence, finding traction in use cases such as lending, trading, and investing, without the intermediation of traditional financial institutions.
The Basel Committee on Banking Supervision (BCBS) published reports that assessed the overall implementation of the net stable funding ratio (NSFR) and the large exposures rules in the U.S.