Page 11 - EBA 2013.2869 Risk Assesment Report final proof4

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R I S K A S S E S S M E N T O F T H E E U R O P E A N B A N K I N G S Y S T E M
9
and only some market analysts (first attempt
and for future increase). The main findings of
both RAQs are reported through the report
and have contributed to the overall risk as-
sessment.
The report also analyses information gath-
ered by the EBA from the European colleges
of supervisors and from informal discussions
as part of the regular risk assessments and
ongoing dialogue on risks and vulnerabilities
of the EU banking sector.
The report views EU banks as a set of bal-
ance sheets and is organised as follows.
Chapter 2 looks at the external environment
and processes by which EU banks’ balance
assets and liabilities are developing in a given
market sentiment and macroeconomic envi-
ronment, taking into account the regulatory
developments and structural and institution-
al reforms at the European level.
Chapter 3 presents the assets in the bank-
ing system, explaining the ongoing de-risking
process, the respective influence in banks’
business models and risk appetite, the asset
quality and evolution of banks’ loan portfo-
lios, loans in arrears and impaired assets,
as well as policy implications and possible
measures to address these prudential is-
sues.
Chapter 4 provides an overview of the banks’
capital positions and respective positive
trends, taking into account the challenging
conditions in financial markets and the na-
tional efforts progressing towards strong
capital buffers, as well as the EBA recapi-
talisation exercise and the smooth and timely
transition to the CRR/CRD framework.
Chapter 5 switches to the liabilities side,
presenting the general positive evolution
of funding conditions, the rethinking of de-
pendence on less stable funding sources,
the higher reliance on deposit funding and
potential in-market competition for new de-
posits. It also discusses the development of
asset encumbrance and highlights remaining
structural fragilities and challenges, in par-
ticular in countries having experienced some
sovereign stress.
Chapter 6 describes banks’ income and prof-
itability and the significant headwinds during
the end of 2012 and the first semester of 2013,
taking into account the weak economic envi-
ronment and ongoing net interest margins
compression, as well as banks’ ability to keep
relative costs under control, the sustainabili-
ty of their respective business models, policy
implications and possible measures.
Finally, Chapter 7 touches upon aspects of
banks’ consumer issues and reputational
concerns, business conduct, effective and
potential financial costs stemming from mis-
selling and other unfair past business prac-
tices, policy implications and possible meas-
ures to address these prudential issues.