EBA欧洲银行-EBA-Risk-Assessment-Report_December-2016_72页_3mb

Risk Assessment of the European Banking System - December 2016

Core Content

This report provides a comprehensive risk assessment of the European banking system as of December 2016, focusing on macroeconomic environment, asset and liability trends, capital structure, profitability, and operational risks. It is the ninth report published by the European Banking Authority (EBA) and includes a 2016 EU-wide transparency exercise.

Main Points

1. Macroeconomic Environment and Market Sentiment

• Economic growth remains moderate, influenced by low commodity prices, accommodative monetary policy, and slow structural reforms in some jurisdictions.
• Inflation rates are low, with the European Commission projecting 0.3% for 2016 and 1.6% for 2017.
• Interest rates are expected to stay low due to the low inflation outlook, and monetary policy normalization is delayed.
• Political uncertainty, especially from the UK's decision to leave the EU, has contributed to market volatility.
• EU banks face a challenging environment due to low growth and inflation, combined with heightened political and economic risks.
• Credit default swap (CDS) spreads for EU banks have remained elevated, reflecting concerns about long-term solvency.

2. Asset Side

• Volume Trends: Asset and loan volumes have been increasing since 2014, with assets growing faster than loans in 2016 (3.8% vs 1.7%).
• Asset Quality: Non-performing loans (NPLs) have decreased slightly, from 6.5% at the end of 2014 to 5.4% in the first half of 2016.
• NPL Ratios: NPL ratios vary significantly across countries, with more than one third of EU jurisdictions above 10%.
• Coverage Ratio: The coverage ratio (specific allowances for loans to total NPLs) improved slightly, but remains below historical levels.
• Sectoral Exposure: Banks have significant exposures to non-financial sectors, particularly SMEs and commercial real estate.
• Legacy Assets: Resolution of legacy assets remains a challenge, with slow progress and structural issues in NPL management.

3. Liability Side

• Deposit Trends: Deposit volumes have been flat in 2016, despite low and negative interest rates.
• Funding Mix: Banks expect growth in both secured and unsecured funding, with increases in the range of 1% to 5% annually.
• Market Funding: Unsecured debt issuance decreased in 2016, concentrated among banks with strong market perception.
• Subordinated Debt: Issuance of subordinated debt saw a significant reduction, contributing to volatility in funding markets.

4. Capital

• CET1 Ratio: The common equity tier 1 (CET1) ratio increased by 80 basis points (bp) between June 2015 and June 2016, reaching 13.6% on a transitional basis.
• Fully Loaded CET1: The fully loaded CET1 ratio was 13.2% in June 2016, showing continued improvement.
• AT1 Capital: AT1 capital reached 1.2% of REA, indicating room for further capital structure adjustments.
• Capital Structure: Only 18% of banks in the EBA sample have AT1 capital at or above 1.5%, while 48% have tier 2 (T2) capital above 2%, the maximum eligible for the total capital ratio.
• Capital Trends: The continuous increase in common equity is the main driver for the improvement in capital positions, supported by supervisory restrictions on dividends.

5. Profitability

• Return on Equity (RoE): The aggregate weighted average RoE for EU banks was 5.7% as of June 2016, down by more than 100 bp compared to June 2015.
• Operating Income: Total operating income decreased by 8.8%, while operating expenses fell by 3.6%.
• Profitability Challenges: Banks are not yet on a path of full recovery, with RoE still below the cost of equity (CoE).
• Future Outlook: Profitability is expected to remain a challenge, with uncertain market conditions and regulatory pressures.

6. Operational Risks

• ICT-Related Risks: Operational risks are rising, particularly due to ICT vulnerabilities, including outdated systems, insufficient security, and high dependency on IT infrastructure.
• Litigation and Conduct Risk: Legal and litigation risks are significant, with over 44% of banks reporting compensation and redress payments exceeding EUR 500 million since 2007/08.
• Supervisory Focus: Supervisors are addressing ICT-related risks, including legacy systems, IT resilience, and outsourcing practices.
• FinTech Impact: The entry of FinTech competitors is seen as both a challenge and an opportunity.

7. Policy Implications and Measures

• NPL Resolution: Action is needed on NPL resolution, including supervisory measures, structural reforms, and secondary markets.
• Business Model Sustainability: Supervisors emphasize the need for sustainable business models, highlighting the importance of profitability and capital adequacy.
• Regulatory Compliance: Banks must meet new regulatory requirements, including the global standard on total loss-absorbing capacity (TLAC) and the bank recovery and resolution directive (BRRD).
• Market Discipline: The EBA aims to foster transparency and market discipline through its transparency exercise and Pillar 3 disclosures.

Key Information

• The report is based on data from 198 banks across 29 EEA countries, representing about 85% of the EU banking sector.
• The data cut-off date for the report and transparency exercise was 18 November 2016.
• The report includes both qualitative and quantitative data, drawing from EBA supervisory reporting, RAQs, and market sentiment analysis.
• The EBA's transparency exercise provides bank-by-bank data for December 2015 and June 2016, focusing on capital and liquidity metrics.

Summary of Risks and Trends

• Credit Risk: Still high, driven by NPLs, with slow progress in asset quality improvement.
• Operational Risk: Increasing, especially due to ICT vulnerabilities and litigation costs.
• Profitability: Remains a major challenge, with RoE below CoE.
• Liquidity Risk: Limited but with signs of increasing reliance on short-term wholesale funding.
• Capital Adequacy: Improved, but with room for further adjustment in capital structure.

Conclusion

The European banking system continues to face significant challenges, including high NPL levels, low profitability, and rising operational risks. While there have been improvements in capital adequacy and asset quality, the path to full recovery remains uncertain. Supervisors are focused on enhancing risk management frameworks, particularly in the areas of credit, operational, and liquidity risk. The report underscores the need for structural reforms, effective NPL resolution, and sustainable business models to support long-term financial stability.