EBA欧洲银行-Risk-Assessment-Questionnaire-December-2016_70页_5mb

Risk Assessment Questionnaire – Summary of Results (December 2016)

Introduction

The European Banking Authority (EBA) conducts semi-annual Risk Assessment Questionnaires (RAQs) among banks and market analysts. This summary presents the results of the RAQs conducted in October and November 2016, with 38 banks or their supervisory bodies and 21 market analysts participating. The results are also used as a source for the EBA's annual Risk Assessment Report, published on 2 December 2016.

Summary of the Main Results

• Profitability: Expected to remain a significant challenge for banks.
• Volume Growth: Assumed in specific portfolios like SME and retail lending.
• Operational Risks: Expected to remain high, with litigation costs being a key concern.

Core Content

1. Business Model / Strategy / Profitability

• Banks:

  • Long-term profitability targets have continued to decline. 45% of banks agree that they can operate with a Return on Equity (RoE) between 10% and 12%, up from 20% in June 2016.
  • The current average return on equity for the largest EU banks is less than 6%.
  • The share of banks that consider a RoE below 10% as acceptable has increased to nearly 30%.
  • The estimate of Cost of Equity (CoE) has modestly declined, with 16% of banks estimating their CoE below 8% (down from 8% in June 2016).
  • Less than 50% of banks estimate their CoE between 8% and 10%, down from 55% in June.
  • Only 20% of banks expect an increase in profitability in the next six to twelve months, while 45% somewhat agree.
  • Over 70% of market analysts believe profitability will not improve.
  • Cost reduction is still the main driver for profitability improvement, with about 40% agreement.
  • Fewer banks consider net interest income as a main driver (up from 37% to 55% "disagree" and "somewhat disagree").

• Market Analysts:

  • Monetary policy trends, litigation risks, and regulatory uncertainty are the main drivers of negative market sentiment (70% agreement).
  • Additional referendums and emerging market-related risks are also significant (60% and 45% agreement, respectively).
  • Mergers and acquisitions are expected to be a main trend, increasing from 25% in June to 45% in December.
  • Growing technological advances are expected to be less influential, decreasing from 70% to 60% agreement.

2. Funding / Liquidity

• Banks:

  • Over 40% intend to issue AT1 instruments in the next 12 months, while over 60% plan to issue T2 instruments.
  • 70%–80% of market analysts agree that banks will be able to issue such instruments.
  • 90% of market analysts expect banks to issue MREL/TLAC eligible debt instruments.
  • More than 15% of banks plan to attain more central bank funding, compared to 20% in June.
  • A majority of banks rely on retail deposits (55% agreement), with a slight decrease from June.
  • Over 10% of banks intend to increase funding through securitization, up from 5% in June.
  • Market analysts show similar trends but with more pronounced changes, with 33% expecting growth in central bank-based funding (up from 0% in December 2015).
  • Fewer analysts expect an increase in deposits from wholesale clients (down from 25% in June to 5%).

• Market Analysts:

  • Market liquidity is expected to decrease, with 30% agreement (down from 50% in June).
  • They are more optimistic about this trend compared to June.

3. Asset Volume Trends and Asset Quality

• Banks:

  • More banks consider asset deleveraging as part of their strategy (50% agreement, up from 42% in June).
  • Disposal of business units and asset sales remain the main drivers of deleveraging (45% agreement, up from 30% in June).
  • Nearly the same number of banks as in June plan to increase balance sheet volumes (about 50% agreement).
  • Fewer analysts agree with this expectation (about 25% vs. 35% in June).

• Portfolio Growth:

  • Banks plan to increase SME financing (85% agreement, up from 75% in June).
  • Fewer banks plan to increase corporate portfolios (70% agreement, down from 80% in June).
  • Residential mortgage and consumer loans remain in focus (both about 65% agreement).
  • Market analysts expect similar portfolio growth, with 67% for SME loans, 60% for residential mortgage and consumer credit, and 50% for corporate loans.

• Asset Quality:

  • Banks expect improvements in asset quality for SME and residential mortgage loans (about 50% agreement), and consumer credit (about 35% agreement).
  • Market analysts expect improvements mainly for residential mortgage loans (85% vs. 70% in June), corporate loans (nearly 70% vs. 55% before), and consumer credit/SME financing (both about 50%, slightly down from 55% in June).
  • A deterioration in asset quality is mainly expected for asset finance (shipping, aircraft, etc.) by market analysts (70% agreement, down from 80% in June).

4. Conduct, Reputation, and Operational Risk

• Banks:
  • 40% expect litigation costs to be heightened in the next six to twelve months (similar to December 2015).
  • A larger number of market analysts have a similar expectation for the EU banking sector (62% agreement, up from 45% in June).
  • Nearly half of the banks expect an increase in operational risks (about 40% agreement, similar to June).

5. General Open Question

• Banks:
  • Mainly refer to central bank policies, the low interest rate environment, and regulatory risks as sources of increasing risks and vulnerabilities.
• Market Analysts:
  • Focus on economic developments such as low economic growth, missing loan demand, and challenges from commodity prices.

Key Information

• Profitability: Declining, with banks expecting to operate with a RoE below 10%.
• Funding: Banks are planning to issue AT1 and T2 instruments, with market analysts showing similar trends.
• Liquidity: Market analysts are more optimistic about a decrease in market liquidity.
• Asset Deleveraging: Seen as a key strategy, with disposal of business units and asset sales as main drivers.
• Asset Quality: Expected to improve for SME and residential mortgage loans, but deteriorate for asset finance.
• Operational Risks: Litigation costs and lengthy judicial processes are major concerns.
• Market Sentiment: Negative, driven by regulatory uncertainty, litigation risks, and monetary policy trends.
• Open Questions: Banks and market analysts identify different sources of risk, with banks focusing on regulatory and policy issues and analysts on economic developments.

Main Views

• Profitability: Banks and market analysts both expect continued challenges.
• Funding Sources: Retail deposits remain the primary source of funding, with an increase in securitization.
• Asset Management: Deleveraging and specific portfolio growth are key strategies.
• Asset Quality: Mixed expectations, with improvements in some areas and deterioration in others.
• Operational Risks: High, with litigation costs and judicial processes being significant factors.
• Market Risks: Analysts highlight economic and regulatory risks as key drivers of future vulnerabilities.