The post-pandemic outlook in the banking union - Andrea Enria
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The post-pandemic
outlook in the
banking union
7 July 2021 Andrea Enria
www.ecb.europa.eu ©Continuously improving macro outlook
Chart 1 Chart 2
Eurosystem staff GDP projections Indicators of uncertainty
(index: Q4 2019 =100) (standard deviation from mean)
Macroeconomic uncertainty
Financial uncertainty
March 2021 projections June 2021 projections
Economic policy uncertainty
Mild, March Mild, June Forecast disagreement
10
Severe, March Severe, June
110
8
105
6
100
4
95
2
90
0
85
-2
80
Q1 2019 Q1 2020 Q1 2021 Q1 2022 Q1 2023
Source: ECB.
Notes: All measures of uncertainty are standardised to mean zero and unit standard deviation over the full horizon starting in
Source: ECB. June 1991. A value of 2 should be read as meaning that the uncertainty measure exceeds its historical average level by two
Note: The vertical line marks the start of the projection horizon. standard deviations. The latest observations are for May 2021.
2 www.bankingsupervision.europa.eu ©Improving liquidity and capital positions
Chart 3 Chart 4
Liquidity coverage ratio CET1 ratio
(percentages) (percentages)
200%
180%
15.6%
160%
15.2%
140%
14.9%
120% 14.9%
14.6%
14.4%
100%
80% 14.4%
14.3%
13.8%
13.9% 14.1%
60%
40% 13.7%
20%
0%
Source: Supervisory reporting.
Note: Sample comprises of 112 SIs as at the fourth quarter of 2020.
3 www.bankingsupervision.europa.eu ©Contained tightening in bank lending standards
Chart 5 Chart 6
Lending standards and loan demand: non-financial Lending standards and loan demand: households
corporates (percentages)
(percentages)
Net tightening of credit standards on loans to non-financial corporates Net tightening of credit standards on loans to households
Net demand for loans to non-financial corporates Net demand for loans to households
70 70
50 50
30 30
10 10
-10 -10
-30 -30
-50 -50
-70 -70
Dec-03
Sep-04
Dec-06
Sep-07
Dec-09
Sep-10
Dec-12
Sep-13
Dec-15
Sep-16
Dec-18
Sep-19
Jun-05
Jun-08
Jun-11
Jun-14
Jun-17
Jun-20
Mar-03
Mar-06
Mar-09
Mar-12
Mar-15
Mar-18
Mar-21
Dec-03
Sep-04
Dec-06
Sep-07
Dec-09
Sep-10
Dec-12
Sep-13
Dec-15
Sep-16
Dec-18
Sep-19
Jun-05
Jun-08
Jun-11
Jun-14
Jun-17
Jun-20
Mar-03
Mar-06
Mar-09
Mar-12
Mar-15
Mar-18
Mar-21
Source: ECB Bank Lending Survey.
Note: A positive net percentage indicates that a larger proportion of banks have tightened credit standards (“net tightening”), whereas a negative net percentage indicates that a
larger proportion of banks have eased credit standards (“net easing”).
4 www.bankingsupervision.europa.eu ©Non-performing loans ratio continued to decrease
Chart 7
Significant institutions’ non-performing loans
(left-hand scale: EUR billions, right-hand scale: percentages)
Non-performing loans ratio (right-hand scale)
Performing loans (left-hand scale)
Non-performing loans (left-hand scale)
18,000 8%
16,000 7%
14,000
6%
12,000
5%
10,000
4%
8,000
3%
6,000
2%
4,000
2,000 1%
0 0%
Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2014 2015 2016 2017 2018 2019 2020
Source: ECB statistics as at the fourth quarter of 2020.
Note: Changing sample.
5 www.bankingsupervision.europa.eu ©Areas of supervisory concern: vulnerable sectors
Chart 9
Chart 8 Probabilities of default used for provisioning on new lending
Significant institutions’ exposures to vulnerable sectors within the accommodation and food sectors
(percentage of total exposures to non-financial corporates) (top chart: accommodation sector, bottom chart: food sector)
Average IFRS 9 PD stock March 2020
Average IFRS 9 PD flow new business March-December 2020
30%
PD on new PD on new
25% business during business
Libraries, archives, museums
COVID-19 < Stock during COVID-
Creative, arts and entertainment activities 20%
Travel agency, tour operator, reservations,… PD pre-COVID-19 19 > Stock PD
Manufacture of wearing apparel pre-COVID-19
15%
Repair/installation of machinery & equipment
Extraction of petroleum and natural gas 10%
Manufacture of textiles
Air transport 5%
Sports activities and amusement
Manufacture of other transport equipment 0%
Water transport (incl. shipping)
Bank 10
Bank 11
Bank 12
Bank 13
Bank 14
Bank 15
Bank 16
Bank 17
Bank 1
Bank 2
Bank 3
Bank 4
Bank 5
Bank 6
Bank 7
Bank 8
Bank 9
Manufacture of motor vehicles
Food and beverage service activities
Warehousing & support activities for transport
Wholesale and retail trade of motor vehicles 30%
Land transport and transport via pipelines PD on new
Rental and leasing activities 25% PD on new business
Accommodation business during during COVID-
Retail trade, except of motor vehicles 20% COVID-19 < Stock
Construction of buildings 19 > Stock PD
PD pre-COVID-19 pre-COVID-19
0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 15%
10%
5%
Sources: Chart 8: AnaCredit data as at the fourth quarter of 2020; Chart 9: ECB ad hoc data collection.
Notes: Chart 8: sample comprises 106 significant institutions. Exposures granted by subsidiaries outside 0%
Bank 10
Bank 11
Bank 12
Bank 13
Bank 14
Bank 15
Bank 16
Bank 17
Bank 1
Bank 2
Bank 3
Bank 4
Bank 5
Bank 6
Bank 7
Bank 8
Bank 9
the euro area are not included in AnaCredit. Chart 11: preliminary evidence.
6 www.bankingsupervision.europa.eu ©Banks’ projections: profitability pushed up by lower provisions
Chart 10
Significant institutions’ loan loss provisions and profitability (observed
and Q4 2021 forecast values)
(percentages)
Cost of risk (right-hand scale)
Return on equity (left-hand scale)
6% 0.8%
• Increasing revenues: fee
5%
0.7%
income to offset contraction in
0.6% interest income
4%
0.5%
3% 0.4%
• Falling loan loss provisions
0.3%
2% • Increasing administrative
0.2%
1%
expenses following reduction
0.1%
in 2020
0% 0.0%
Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 Q4 2021
Sources: FINREP for actual values, COVID-19 reporting for the projections.
Notes: Sample sizes and ratio definitions differ between actual values and projections owing to data availability. Cost of risk is the ratio of the adjustments in allowances for estimated loan
losses during the relevant period (annualised) divided by the total amount of loans and advances subject to impairment.
7 www.bankingsupervision.europa.eu ©Capital-related aspects of ECB Banking Supervision crisis
response
• Release of P2G capital buffers (March 2020), replenishment not before end-2022
Capital and • Release of liquidity (LCR) buffers (March 2020), replenishment not before end-2021
liquidity relief
• Recommendation (March 2020) to refrain from dividend payout until 1 January 2021 and to exercise
extreme prudence until 30 September 2021
Dividend
recommendation • In absence of adverse events, recommendation will be repealed from 1 October 2021
• Pragmatic SREP in 2020, with P2R and P2G basically unchanged
Pragmatic SREP
• In 2021 cycle, new determination of P2R and P2G
• Desktop-based vulnerability analysis in 2020
Stress test
• Full stress test in 2021, with P2G based on revised methodology → see next slide
8 www.bankingsupervision.europa.eu ©From 2021 SREP: revised P2G methodology
Why: CRDV legislative changes + EBA Draft Guidelines on SREP(*)
Banks ranked by maximum CET1 capital depletion
JST adjustment
Fixed set of thresholds
Setting
Step 1:
1 2 3 4 Step 2:
the final
P2G
P2G Bucket
starting Bucket 4
point Bucket 3
Bucket 2
0% 1 0%
New methodology in line with recent EBA draft guidelines on SREP
• Step 1: identification of the institution in a bucket according to the maximum CET1 depletion in the supervisory stress test exercise. Buckets
calibrated according to recent supervisory experience, SSM risk tolerance and severity of the stress test exercise.
• Step 2 JSTs expert judgement to adjust the P2G to the idiosyncratic profile of the institution. Adjustment within the ranges of the corresponding
bucket and exceptionally beyond the range of the relevant bucket, including for the last bucket.
Enhancements: level playing field, consistency, no floors, no cliff effects (overlapping P2G ranges), institution-specific
adjustments, reasonable range of P2G outcomes including in cases of high capital depletion.
* Consultation Paper: Draft Guidelines on common procedures and
methodologies for the supervisory review and evaluation process (SREP) and 9 www.bankingsupervision.europa.eu ©
supervisory stress testing under Directive 2013/36/EUYou can also read
