EBA欧洲银行-2016-June-RAQ-consolidated_67页_3mb

Risk Assessment Questionnaire – Summary of Results (June 2016)

Introduction

The European Banking Authority (EBA) conducted semi-annual Risk Assessment Questionnaires (RAQs) among 38 banks and 20 market analysts in April and May 2016. This summary provides the overall findings of these questionnaires, which are presented in an aggregated graphical form. The results are based on the responses to various questions, and where applicable, comparisons are made with previous results from December 2015.

Summary of the Main Results

Despite market volatility following the UK's referendum, the EBA's RAQs indicate that targeted growth is expected to return. However, profitability remains a significant challenge, and litigation costs may increase again. The results reflect a mix of expectations and concerns among banks and market analysts.

Banks' Questionnaire

1. Business Model / Strategy / Profitability

• Profitability Targets: Half of the banks expect a Return on Equity (RoE) between 10% and 12% for long-term operations. About 20% of banks consider a RoE below 10% as acceptable.
• Cost of Equity (CoE): A slightly increasing number of banks estimate their CoE in a range between 8% and 10% (55% agreement, up from 49% in December 2015).
• Profitability Outlook: 70% of banks expect profitability to increase in the next 6–12 months, while over 70% of market analysts believe profitability will not improve.
• Profitability Drivers: Cost reduction is still the main driver for profitability improvement, with nearly 40% agreement. Reduced impairments are also becoming a more significant driver, increasing from about 30% to 37%.
• Emerging Market Risk: Significantly fewer banks (less than 20%) consider losses from emerging markets as a risk in the next 6 months, down from over 30% in December 2015.
• Commodity and Energy Exposures: Over 40% of banks expect increasing losses from these exposures.
• Political and Regulatory Uncertainty: Market analysts highlight political and regulatory uncertainty around Pilar 2 and Maximum Distributable Amounts (MDA) as key drivers of negative market sentiment.
• Technological Advances: A significantly higher percentage of market analysts (about 70%) expect technological advances to be a main trend affecting banks in the next 6–12 months, compared to 25% in December 2015.
• Shadow Banking: Less than 25% of market analysts consider shadow banking as a trend affecting European banks, down from 50% in December 2015.

2. Funding / Liquidity

• AT1 and T2 Instruments: Over 40% of banks intend to issue AT1 instruments in the next 12 months, while over 60% intend to issue T2 instruments. These percentages are lower than in December 2015.
• Pricing as Constraint: Banks cite pricing as the main constraint to issuing these instruments (55% agreement).
• Market Analysts' Views: Between 70% and 90% of market analysts expect banks to be able to issue these instruments, and nearly 100% expect banks to be able to issue MREL/TLAC eligible debt instruments.
• Central Bank Funding: Nearly 20% of banks plan to attain more central bank funding, with a roughly even split between those in financially distressed and core countries.
• Retail Deposits: A big majority of banks continue to rely on retail deposits for funding, with agreement slightly increasing to nearly 60%.
• Senior Unsecured Funding: About 45% of banks intend to increase their senior unsecured funding, up from 40% in December 2015.
• Market Analysts' Trends: A substantial increase in the proportion of market analysts expect growth in central bank based funding, while fewer analysts expect an increase in subordinated debt.
• Asset Encumbrance: 40% of banks are concerned about the level of asset encumbrance, while only 5% of market analysts show concern.

3. Asset Volume Trends

• Asset Deleveraging: Fewer banks than in December 2015 consider asset deleveraging as part of their strategy (about 42% agreement).
• Deleveraging Drivers: Disposal of business units and asset sales remain the main drivers (about 30% agreement), down from nearly 80% in December 2015.
• Balance Sheet Growth: Slightly more banks than in December 2015 plan an increase in balance sheet volumes (about 50% agreement).
• Market Analysts' Expectations: About 35% of market analysts agree with the expectation of balance sheet growth, up from 30% in December 2015.

4. Asset Quality

• Profitability and Asset Quality: Banks expect that portfolios they plan to increase in volumes will also improve in terms of asset quality.
• Asset Quality Improvement: Improvements are mainly expected for SME financing (about 50% agreement), residential mortgage (about 70% agreement), and consumer credit.
• Deterioration in Asset Quality: Banks expect deterioration in asset quality for asset finance (shipping, aircraft etc.), with about 30% agreement. Market analysts expect a higher level of deterioration, with about 80% agreement.
• Impairment Provisions: Less than a third of the banks expect an increase in impairment provisions over the next 12–18 months. Banks from financially distressed countries expect a decline, while those from core countries expect an increase.
• Impediments to NPL Resolution: Lengthy and expensive judiciary processes are considered one of the main impediments to resolving non-performing loans (NPLs) (about 65% agreement), while the lack of a market for NPL transactions is the second most important impediment (about 50% agreement).

5. Conduct, Reputation, and Operational Risk

• Litigation Costs: Nearly 40% of banks expect litigation costs to increase in the next 6–12 months, similar to December 2015.
• Operational Risks: Nearly 40% of banks expect an increase in operational risks, up from 35% in December 2015.

6. General Open Question

• Banks' Risks and Vulnerabilities: Banks mainly refer to central bank policies, the low interest rate environment, regulatory risks, and the economic environment as sources of risk expected to increase.
• Market Analysts' Risks and Vulnerabilities: Market analysts mainly refer to political and regulatory risks.

Market Analysts' Questionnaire

1. Business Model / Strategy / Profitability

• Business Model Changes: Banks are expected to make material changes to their business models, primarily due to M&A transactions, competition from shadow banking, and regulatory requirements.
• Profitability Outlook: Market analysts believe profitability will not improve, with over 70% disagreeing or somewhat disagreeing.
• Profitability Drivers: Market analysts believe that increasing credit demand and cheap available funding will lead to asset increases.

2. Funding / Liquidity

• Central Bank Funding: A substantial increase in the proportion of market analysts expect growth in central bank based funding, while fewer analysts expect an increase in subordinated debt.
• Market Liquidity: Market analysts expect a decrease in market liquidity within the next twelve months (50% agreement).

3. Asset Volume Trends

• Asset Deleveraging: Market analysts expect a decrease in volume for Commercial Real Estate (CRE), with 60% agreement, up from 45% in December 2015.
• Asset Finance: A large portion of market analysts (80%) expect a decrease in volume for asset finance (shipping, aircraft etc.), up from 65% in December 2015.
• Asset Sales: Nearly 100% of market analysts expect more asset sales in specific loan portfolios and geographies.

4. Asset Quality

• Asset Quality Improvements: Market analysts expect improvements in asset quality for residential mortgage loans (70%), corporate loans (55%), consumer credit (55%), and SME financing (55%).
• Asset Quality Deterioration: Market analysts expect deterioration in asset quality for asset finance (80% agreement), up from 55% in December 2015.

5. General Open Question

• Additional Risks and Vulnerabilities: Market analysts highlight political and regulatory risks as the main sources of risk expected to increase in the next 6–12 months.

Appendix

The full questionnaires for banks and market analysts are available in the Appendix and include detailed questions on business models, profitability, funding, asset trends, and asset quality. The responses are presented in graphical form and are compared with previous results where applicable.