EBA Publishes Funding Plans Report, Receives EMAS Certification

The Funding Plans Report summarizes trends in assets, liabilities, and relative pricing projected by banks. The report assesses the reliability of the projections made by banks, through back-testing of past funding plans and comparisons with other data sources. The analysis is based on funding plan data as per end-2021, reported in accordance with the EBA Guidelines. This year, nearly 159 banks submitted their funding plans for a forecast period from 2022 to 2024. The report highlights strong deposit growth and increase of public sector sources of funding in 2021. The plans show the intention of banks to increase market-based funding over forecast period, while the gap between planned debt issuance and maturing targeted longer-term refinancing operations (TLTRO) in the coming two years remains significant. The analysis indicates plans to issue more debt instruments in the coming years with the intention to counterbalance the expected decline in central bank funding. The report findings show that:

• the total assets of banks increased by 3% in 2021, mainly driven by a surge in cash balances at central banks because of central bank support measures introduced in response to the pandemic.
• the loan volume growth, albeit varied across countries, also contributed to the increase in total assets, and banks expect loans to non-financial corporates and households to grow by 4% per year over the forecast period.
• the surge in deposits continued in 2021 and by the end of the year represented 76% of banks’ total funding sources. For the forecast period, 2022 to 2024, banks are expecting deposit growth to decline to 3% per year.
• banks plan to issue more debt 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 11%, reaching EUR 4.1 trillion in 2024.
• banks’ use of public sector funding such as the TLTRO Program of ECB increased in 2021. Public sector funding contributed almost 9% of banks’ total funding in 2021. Banks expect the share of public funding is set to decline to about 2.5% by 2023.
• the spread between interest rates for loans to both households and non-financial corporates versus client deposits has continued its decline in 2021. The average difference was 2.04% in 2021 compared to 2.22% one year earlier. Most banks expect that these spreads will increase during 2022.
• most banks reported a decline in their funding costs during 2021 and expects it to decline even further in 2022. The average cost of long-term funding was reported as 1.19%, a decline of 13 bps compared to 2020 levels.

The report also revealed that back testing results for 2021 were better than expected. A comparison of banks’ forecasts for 2021 (provided in 2020) with the actual figures reported in December 2021, reveals that loan growth in 2021 turned out to be higher than the banks had planned for. Similarly, the actual growth in deposits largely surpassed banks’ estimates and banks achieved lower costs for market-based funding in 2021 than they had planned for one year earlier. For 2022, banks’ expectations might be too optimistic as these projections were made before the Russian aggression against Ukraine and the changing economic situation. Rising inflation and monetary tightening by the European Central Bank (ECB) and other European Union central banks will likely lead to further deviations from bank forecasts.

Related Links

• Press Release on Funding Plans
• Funding Plans Report (PDF)
• Press Release on EMAS Certification

Keywords: Europe, EU, Banking, Funding Plans, MREL, Lending, TLTRO, Basel, Regulatory Capital, ESG, Sustainable Finance, EMAS, EBA