Page 19 - 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
17
has the weighted average of the loan-to-de-
posit ratio been decreasing since September
2011 (from 147 % to 139 % in December 2012),
but also the median (from 152 % to 140 % in
December 2012). Moreover, a decreasing dis-
persion is being seen since March 2012, with
the 75th percentile decreasing from 184 % to
163 % in December 2012. The weighted aver-
age loan-to-deposit ratio declined to 139 %,
10 percentage points less than 3 years before
and this trend is observed within the EU, with
different intensities across geographies.
The majority of the RAQ respondents agree
or somewhat agree that the asset deleverage
is an element of their strategy. The majority
refer they were deleveraging for both ‘private’
drivers as described earlier, i.e. according to
their own business strategy reasons, and in
some cases ‘public’ drivers according to of-
ficial requirements or suggested by national
supervisors.
Most RAQ respondents continue to consider
that their deleverage strategy is mainly driven
by the decision to de-risk a bank’s business
and balance sheet, for instance, shedding
highly risky or less profitable assets, followed
by constraints due to future capital needs.
Business models
EU banks continue to rebalance their willing-
ness to take risk and to embrace risk-averse
strategies across products and geographies,
systematically avoiding material risk-taking
both in credit and market activities. The
most impacted business lines are invest-
ment banking and trading, reflecting a dis-
interest from high-risk high-return activi-
ties and moving towards a more balanced
approach with an emphasis on retail activi-
ties. In parallel, cross-border activities have
also reduced across non-core and emerging
markets, provoking a significant withdrawal
of large EU banks from global finance, on
aggregate by far the largest participants,
with impact on international trade finance.
Banks are also seeking to increase effi-
ciency of low-margin businesses, either
through lower cost income ratios, increas-
ing asset/inventory turnover or regulatory
optimisation. In parallel, banks continue
to consolidate on areas where they have a
natural advantage or economies of scale —
both on the retail and the trading side — and
where the emergence of banks with signifi-
cant transaction volumes is apparent. These
trends point towards further consolidation
of the sector as banks with strong infor-
mation technology (IT), infrastructure, risk
management and trading platforms stand
to benefit from the increasing automation
of banking services, while the emergence
of regional niche players is also a theme
that is gaining momentum. This structural
transformation process occurring across
the banking sector presents considerable
execution risk, and heightens the risk that
banks will be less able to rely on organic
capital generation to meet the new regula-
tory requirements.
In addition, some inability of many banks to
adjust their balance sheets and their reduced
risk appetite has also led to an increase in
banking activities being undertaken by the
non-bank sector (disintermediation) or in
some instances by other banks operating
under a more favorable regulatory regime.
Overall though, the risks in the banking
system are now better understood and ad-
dressed than prior to the crisis; however,
there is still considerable uncertainty as
banks are sometimes slow to adapt to the
new reality and the transition is costly.
The responses from the RAQ present some
general trends. With regard to the main driv-
ers, while for banks there are several refer-
ences to market structures and dynamics
as well as earnings pressure as reasons for
changes, market analysts regard regulatory
initiatives as a main reason. There is a grow-
ing trend for banks to also agree or some-
what agree that they have already achieved
the right earnings-risk mix; nevertheless, a
strong majority anticipate changing it fur-
ther in order to better match their risk-re-
turn targets.
RAQ respondents’ views on changes to busi-
ness models and on the scaling down of busi-
ness lines show that banks have reduced the
intention in making material changes, pos-
sibly due to the fact they have already started
implementing changing programmes. Nev-
ertheless, the business lines to be scaled
down continue to be similar to those in previ-
ous questionnaires, that is, commercial real
estate (CRE), wholesale lending (including
international leasing, and shipping), and pro-
ject finance.
RAQ respondents show an increasing trend
referring that their banks’ business models
have been making adjustments in recent