Page 17 - EBA 2013.2869 Risk Assesment Report final proof4

Basic HTML Version

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
15
3. Assets side
There is an ongoing reduction of balance
sheets and loan books across the EU and
it is still necessary to reduce further and
strengthen European banks’ balance sheets.
Many examples in financial history empha-
sise the importance of bank deleveraging to
overcome banking crises and restore stabil-
ity in a banking sector. However, the optimal
pace of deleveraging is a difficult process and
warrants close attention.
As a direct result of the financial crisis, eco-
nomic uncertainty and regulatory reform,
banks need to adapt to the new business en-
vironment. The financial crisis has exposed
weak business models and business lines,
and the wave of global regulatory reform is
considerably altering the risk return dynam-
ics of numerous business lines going forward.
The quality of banks’ loan portfolios contin-
ued to deteriorate throughout 2012 and the
first months of 2013. The September and De-
cember 2012 KRIs, and the responses to the
RAQ on asset quality both point to a contin-
ued deterioration of asset quality in the last
few months.
De-risking
Across the EU banking sector there is a need
for de-risking, bringing leverage to more
conservative levels and a number of Europe-
an banks have not yet completed the clean-
up of their balance sheets and shedding of
legacy assets.
In EU countries there is no evidence that an
excessive or disorderly asset deleveraging
has occurred, especially insofar as assets
related to the real economy (loans to busi-
nesses and households) are concerned. This
is an important element taking into account
that if deleveraging happens, disorderly
banks can sharply restrict bank credits, in-
ducing a credit crunch. Nevertheless, Euro-
pean banks have been systematically tighten-
ing credit conditions, underscoring the risks
of a disproportionate lending retrenchment.
On the other hand, a slow and not convinc-
ing process of deleveraging can raise ques-
tions whether assets still remain overvalued,
undermining market confidence and normal
funding for growth. More severe deleverag-
0 %
50 %
100 %
150 %
200 %
250 %
300 %
Dec 09
Mar 10
Jun 10
Sep 10
Dec 10
Mar 11
Jun 11
Sep 11
Dec 11
Mar 12
Jun 12
Sep 12
Dec 12
Figure 5: Loan-to-deposit (
source:
KRI) —
5th and 95th percentiles, interquartile range and median
Total loans advances (Loans and advances held for trading, designated at fair value through profit or loss, AFS, Loans and receivables, HTM). Total
deposits (other than from credit institutions: Deposits held for trading, designated at fair value through profit or loss, measured at amortised cost).