Page 12 - EBA 2013.2869 Risk Assesment Report final proof4

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E U R O P E A N B A N K I N G A U T H O R I T Y
10
2. External environment
Market sentiment and macroeconomic
environment
There is a comprehensive consensus that
funding conditions have improved compared
to last year. Examining various aspects of
banks issuance, it is visible that the situation
in bank funding is healthier. Bank debt issu-
ance is being relatively strong in the favour-
able spread environment and even banks in
countries with financially stressed sover-
eigns have re-accessed the markets. How-
ever, a weak macroeconomic environment
and respective data and indicators continue
to show signs of retreatment and risks to the
global outlook remain evident, in a clear dis-
location between financial markets and the
real economy.
Funding conditions are particularly improv-
ing for peripheral banks — both large and
small — and they have been active issuers
in the last couple of months, suggesting that
wholesale funding markets remain open. Is-
suance is still not very large, but it seems
that it has more to do with the lack of need
rather than the lack of ability to issue. Con-
currently, banks have more funding avenues
including increased deposits and central
bank access. Maturities are similar to last
year’s level, but banks are continuing to de-
leverage, deposit growth remains positive in
most countries, and banks still benefit from
ample central bank liquidity.
Moreover, the secondary market is showing
that investor demand is substantial and ex-
ceeds supply from new issues. Benign fund-
ing conditions, in particular in ‘peripheral’
countries, are not only supported by im-
proved market sentiments but also by bank
debt investors being prepared to go down
the credit curve in search for yield. In paral-
lel, spreads of bank benchmark bonds of dif-
ferent durations have continued to decline in
both ‘core’ and ‘peripheral’ countries. At the
same time, banks are also taking advantage
of the renewed USD investors’ confidence,
seeming to have little problem in accessing
USD funding. The increasing USD funding of
European banks could be considered a sign
of regaining trust from the US investors.
In addition, unsecured funding has grown in
terms of share from 60 % to 65 %, collater-
alised funding decreased from 31 % to 27 %,
and government-guaranteed funding, which
was largely absent in the first months of the
year, has returned in the second quarter of
2013. Even the sovereign developments in
March did not lead to a lasting reversal of
the benign trend but only to some temporary
deterioration. The secured issuance falling,
as an overall percentage, confirms the im-
provement of the unsecured market.
The first-quarter earnings season points to
improved capital positions owing to run-offs
of non-core assets, organic capital gen-
eration and cost-containing efforts flowing
through. In addition, notwithstanding con-
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Itraxx euro financials (senior S y)
Euro Stoxx 600 banks
Figure 1: Stoxx 600 banks share price index
(
source:
Bloomberg)