Page 32 - EBA 2013.2869 Risk Assesment Report final proof4

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0 % 20 % 40 % 60 % 80 %
You see threats to your retail deposit
growth due to increased market
competition and changing customer
You see threats to your wholesale deposit
growth due to increased competition and
rate shopping
You accept increasing your deposit base
through offering better rates and terms to
gain market share
0 % 20 % 40 % 60 % 80 %
You are aiming to reduce your
loan-deposit ratio
a. If so:
i. Via loan growth control or
ii.Via funding growth
iii. Via both
Jun 2013 — Agree
or somewhat agree
Dec 2012 — Agree
or somewhat agree
Jun 2012 — Agree
or somewhat agree
Figure 22: Deposits (
The length of the bars shows the percentage of respondents who agreed or somewhat agreed with the statement on the y-axis.
deposit base in order to target lower loan-
deposit ratios.
Therefore, aiming for higher reliance on de-
posit funding is leading to more balance sheet
stability and a better funding mix, but at the
same time may result in an increase of in-
market competition among banks for new
deposits in some geographies, raising overall
funding costs and thus potentially challenging
bank profitability.
Moreover, increasing reliance on deposits
could also pose vulnerabilities as deposits
might become more volatile as new resolution
and bail-in requirements emerge. As a result,
continued funding challenges continue to ex-
ist, particularly in distressed countries.
RAQ respondents reduced their apprehen-
sion for increased market competition in re-
tail deposits and wholesale deposits. At the
same time, they also reduced their accept-
ance to increase deposit base through of-
fering better rates and terms to gain market
share, consequently reducing competition for
deposits. The majority of the RAQ respond-
ents are still aiming to reduce their loan-to-
deposit ratio via both loan growth control or
reduction and funding growth.
Asset encumbrance and collateral
In 2012, the reliance on secured funding has
created a substantial amount of asset en-
cumbrance. In cases where it exceeds certain
thresholds the asset encumbrance could be
harmful and self-reinforcing. Amongst many
reasons, the excessive reliance on central
bank borrowing required banks to earmark
significant amounts of collateral in their bal-
ance sheets. At the same time, forthcoming
regulations are likely to lead to an increase
in the demand for collateral. A sustainable
development needs to consider the necessity
to restore market access for banks, both in
terms of costs and availability, and a move
away from central bank support towards the
increasing use of unsecured funding on pri-
vate markets.
Looking ahead, there are some positive
signs. A majority of RAQ respondents con-
tinue to consider that there will be less need
for central bank borrowing and do not intend
to rely more on secured lending. At the same
time, there is a strong response decrease
in saying that the level of collateral neces-
sary for new lending is increasing. In addi-
tion, the majority of RAQ respondents are
measuring the amount and growth of asset
encumbrance and an increasing number of
respondents have internally set a strategic
ceiling for the level of asset encumbrance in
their balance sheets.
A regain in confidence within the banking sys-
tem would be the re-emergence of an active
cross-border interbank market. Signs of frag-
mentation of the single market can be identi-
fied in funding conditions, also evidenced by
a strong reduction in cross-border interbank
activities. Despite a benign funding environ-
ment, banks remain susceptible to a sudden
switch of market sentiment, and the sustain-
ability of benign conditions remains fragile.
Nevertheless, the RAQ respondents provide
some signs of improvement (in comparison
to December 2012) with both a significant de-
crease in the number of banks affected by the
reduction in cross-border activity and also
with fewer banks agreeing to a reduction on
their cross-border interbank lending.