Page 26 - 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
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primarily by SME loans, mortgages and real
estate developer loans and would occur pri-
marily in specific geographies. The relevant
variables to explain potential impairments in
the real estate developer loans are the debt
coverage ratio and the respective collateral.
Moreover, the RAQ respondents consider
that the current levels of impairment provi-
sions adequately protect their bank against
loan impairment losses.
A large majority of RAQ respondents con-
tinued to step up efforts to monitor institu-
tions’ asset quality. They have introduced or
strengthened regular reviews of different
loan portfolios conducted to assess their
current quality, and they have introduced
or strengthened reviews of existing policies
for arrears management. At the same time,
there was a reduction in the percentage of
RAQ respondents who agreed or somewhat
agreed that the number and volume of loans
classified as restructured or under restruc-
turing has increased.
Regarding forbearance issues, the majority
of the RAQ respondents agreed or somewhat
agreed that forbearance is practised and its
extent influences the level of impairment pro-
visioning. There was a significant increase
from 54 % in December 2012 to 65 % in June
2013 in the percentage of RAQ respondents
who agreed or somewhat agreed on what is
happening, particularly, in residential mort-
gages, commercial real estate, and real es-
tate developer loans. The market analysts’
expectation is that asset quality (AQ) will
decrease in the next 12 months, believing
that banks in general continue to show insuf-
ficient loan–loss coverage. In addition, they
somewhat agree that the sector is engaging
in loan forbearance on a material scale and
they would like to have a better view of asset
quality.
Consequently, further coordinated super-
visory actions and commitments to reduce
uncertainties surroundig practices and the
valuation of bank assets would be beneficial
in restoring market confidence in regard to
the reliability and comparability of reported
asset values and of the banks’ status.
Figure 17: Forbearance practices (
source:
RAQ and RAQ market analysts)
For the left-hand side figure, the length of the bars shows the percentage of respondents who agreed or somewhat agreed with the statement on the y-axis. For the right-hand side
figure, the length of the bars shows the percentage of respondents who agreed or somewhat agreed with the statement on the y-axis. The y-axis carries the distribution ABCDE, i.e.
answers to all closed questions, namely: ‘A’ — agree; ‘B’ — somewhat/mostly agree; ‘C’ — somewhat/mostly disagree; ‘D’ — disagree; and ‘E’ — not applicable or no opinion.
0% 10% 20% 30% 40% 50% 60% 70% 80%
Forbearance is practised and its
extent determinesthe level
of impairmentprovisioning
a. If so, this is happening in:
i. Residential mortgages.
ii. CRE
iii. Loans to real estate
developers
iv. Retail sector in general
v. Business sector
in genera.
Jun 2012 — Agree or somewhat agree
Dec 2012 — Agree or somewhat agree
0% 10% 20% 30% 40% 50% 60% 70% 80%
Banks in general show
sufficient loan-loss
coverage
Existing accounting
and disclosure are
insufficient to show
the true picture for AQ
You assume that the
sector engages in loan
forbearance on a
material scale
You would like to
have a better view of AQ
included forbearance
Agree
Somewhat agree
Somewhat disagree
Disagree
No opinion