Evolution of the Supervisory Function within the CNB

Transcription

1 Evolution of the Supervisory Function within the CNB Seminar marking the 2 th anniversary of the Czech and Slovak Central Banks David Rozumek Executive Director Financial Market Supervision October 2 nd, 213

2 I. The Czech Financial Sector

3 Czech Financial Sector The Czech financial sector is dominated by banks 78,5%,6% 7,7% 4,4% 3,2% 5,5% Banks Credit unions Insurance Companies Pension funds Investment companies, investment and mutual funds Leasing companies and other lending institutions

4 Capital Adequacy of Czech Banks As of July 213, capital adequacy was 17.6% (Tier 1 ratio 17.3%) Capital adequacy and leverage ratio (%) 2 16 Capital and capital requirements for the banking risks (CZK billions) /9 7/9 1/1 7/1 1/11 7/11 1/12 7/12 1/13 7/13 Capital adequacy Capital adequacy Tier 1 Leverage ratio Source: CNB 5 6/8 6/9 6/1 6/11 6/12 6/13 Operational and other risks Market risks Credit risk Regulatory capital Source: CNB

5 Profitability of the Banking Sector The Czech banking sector remains profitable during crisis despite the adverse economic conditions which feeds into capitalization Net profit in the Czech banking sector (CZK billions) 1 Capital and capital adequacy in the Czech banking sector (CZK billions; %) /7 7/8 7/9 7/1 7/11 7/12 7/13 Net profit (3M annualised) Net profit (1M annualised) Source: CNB 6/7 6/8 6/9 6/1 6/11 6/12 6/13 Regulatory capital Capital adequacy (%, right-hand scale) Capital adequacy Tier I (%, right-hand scale) Source: CNB

6 Profitability of the Banking Sector RoE and RoA still rather high in international comparison Return on Equity (in %) Return on Assets (in %) CZ AT DE PT SI SK HU PL EA 1,5 1,,5, -,5-1, CZ AT DE PT SI SK HU PL EA Source: IMF FSI Source: IMF FSI

7 Czech Banks Funding Funding structure is sound Key ratios have not change much over years Liquidity ratios in the banking sector (%) 7 22 Deposit-to-loan ratio in selected economies (in %) /7 7/8 7/9 7/1 7/11 7/12 7/13 Quick liquid assets / total assets Liabilities on demand / total liabilities incl. credit institutions Quick liquid assets / clients' deposits Deposits / Loans (clients) (right-hand axis) CZ SK DE PL EA AT HU PT SI Source: ECB Source: CNB

8 Credit Risk Indicators Non-performing loans (NPL) going up in the corporate segment while stable in the housing sector... Non-performing loans 1,% 9,% 7,6 % 8,% 7,% 6, % 6,% 5,% 5,1 % 4,% 3,% 2,% 1,%,% 1/7 7/7 1/8 7/8 1/9 7/9 1/1 7/1 1/11 7/11 1/12 7/12 1/13 7/13 Total loans Non-financial corporations Households 14,% 12,% 1,% 8,% 6,% 4,% 2,% Non-performing loans to households 12,2 % 5,1 % 3,4 %,% 1/7 7/7 1/8 7/8 1/9 7/9 1/1 7/1 1/11 7/11 1/12 7/12 1/13 7/13 Households Housing loans Consumer loans

9 Credit Risk Indicators NPL coverage has stabilized, but structure of NPL got worse... Provisions and coverage of NPLs by provisions (%) 5, 4,5 4, 3,5 3, 2,5 2, 1,5 1,,5, 7/5 7/6 7/7 7/8 7/9 7/1 7/11 7/12 7/13 Source: CNB Loan loss provisions rate NPL coverage ratio (right-hand scale) Structure of NPLs (%) Substandard Doubtful Loss NPLs, total Not past due Up to 3M past due More than 3M past due NPLs, total Source: CNB, CNB calculation

10 Developments in Credit Recent data confirm just a slow loan growth Year-on-year growth rates of a bank loans in the Czech Republic (in %) Source: CNB 3,7% 3,6% -5 -,8% -1 1/1 7/1 1/11 7/11 1/12 7/12 1/13 7/13 Total loans Non-financial corporations Households Year-on-year credit growth to households (in %) ,9% 3,7% -5 -,6% 1/1 7/1 1/11 7/11 1/12 7/12 1/13 7/13 Households Consumer loans Housing loans Consumer loans (after adjustment for one-off transfer) Source: CNB

11 Stress Tests 213: Results The stress tests and other analyses demonstrate that the Czech financial sector is well prepared for potential stresses. Banks have a large capital buffer which enables them to absorb adverse shocks and maintain the sector s overall capital adequacy sufficiently above the regulatory threshold of 8% even in a very unfavorable scenario. To maintain high public and investor confidence in the stability of the Czech banking sector in the current adverse economic environment, banks must maintain a high capacity to absorb potential credit and market losses. No acute risks to financial stability requiring immediate action are identified.

12 II. Supervision of the Czech Financial Sector

13 Integration of Supervision Supervisory institutions till CNB banks Office of State Inspection in the Insurance and Pension (Ministry of Finance) Insurance companies and Pension funds Office for Supervision of Credit Unions credit unions Czech Securities Commission investment funds, mutual funds, stock exchange, brokers and intermediaries, etc. Supervisory institution integrated supervisor since April 26 till now CNB is the only one supervisor banks, foreign bank branches, credit unions insurance companies, foreign insurance company branches, reinsurance company, pension funds depositories securities companies, investment funds, investment companies, mutual funds, brokers and intermediaries payment institutions

14 Functional Model of Supervision Functional model since January 28 Financial Market Regulation and Analyses Department Licensing and Enforcement Department Financial Market Supervision Department Financial Market Supervision Department Credit Institutions Supervision Division Insurance Sector Supervision Division Capital Market Supervision Division Risk Management Control Division Proceedings Rules and Professional Care Control Division

15 Cross-sector Functional Model Since March 211 Financial Market Supervision Dpt. Off-site On-site Prudential supervision Prudential Supervision Division Prudential Inspection Division Conduct of business supervision Conduct of Business Supervision Division Conduct of Business Inspection Division

16 CNB Integrated Supervisor Easy day-to-day communication + information-sharing synergies Easier communication with supervised entities, foreign supervisors Stronger position in the crisis situation Enables to monitor the whole financial market (financial stability perspective) Ability to analyze the impact of development in one sector to other sectors or the whole economy Strong technical and professional support Unification of reporting formats for different sectors where suitable Unification of supervisory techniques for different sectors where suitable Faster development of supervisory methods, internal procedures etc.

17 Integrated Supervisor in Independent Central Bank Easy sharing information from money market, payment system (existence of Chinese walls) crucial for banking supervision Combination of financial stability and supervisory point of views common working groups (stress testing exercises for banks and insurance companies) Independent and apolitical decision-making process Allows to focus on systemic risk Adequate financial sources enable hiring experienced staff and using necessary technical support

18 Cooperation Colleges Technical assistance to third countries (Egypt, etc.) Active participation in EBA Board of Supervisors Management Board CNB representative member of the first EBA mediation panel SCRePol Standing Committee on Regulation and Policy Mediation Panel CNB representative member of the first EBA mediation panel

19 Challenges posed by Banking Union Regulatory area EBA regulatory role even more important (draft BTS) No major challenge (formal double simple majority voting in EBA, but established practice of reaching decisions on consensual basis and level of harmonization reached so far makes decision-making easier) Supervisory area Might face some challenges concerning Q&A and SSH (Single Supervisory Handbook) in relation to individual supervisors and SSM Concerns implementation practice and colleges Up to now weights of individual authorities were balanced Newly one supervisor (ECB) will be much stronger and bigger than any other Risk of a wrong set-up with regard to the SSM Two-speed Europe Tensions between two blocks (participating and non-participating MSs) For one block it will be easier to over-rule the other block Instead of single market we will end up with more fragmented markets within the EU

20 Lessons To Be Learned Importance of having Conservative financial sector Dominated by banks which are well capitalized and have sound funding structure Integrated supervision Alignment of supervisory techniques, methods and procedures across sectors Information sharing, communication and reporting advantages Supervisory and financial stability synergies

21 Thank you for your attention David Rozumek Executive Director Financial Market Supervision Department The CNB disclaims responsibility for any private publication or personal statements of any CNB employee. The views in this presentation are the views of their authors and do not necessarily reflect those of the CNB.