CHALLENGES OF THE BANKING SECTOR

Transcription

1 CHALLENGES OF THE BANKING SECTOR Fernando Restoy Deputy Governor, Banco de España ANNUAL EUROPEAN FINANCIALS CONFERENCE GOLDMAN SACHS Paris, 8 June 216

2 OUTLINE 1 2 Recent developments Challenges 1. Low interest rates 2. Non-productive assets 3. Regulation 3 Expected reaction by the industry 1. Efficiency 2. Fees on services 3. Corporate operations 2

3 1. RECENT DEVELOPMENTS Improvements in terms of capital and profitability but still low returns (below cost of ROE AND COST OF CAPITAL IN DEC 214 AND DEC 215 % equity) SPAIN GERMANY FRANCE ITALY SSM(a) COST OF CAPITAL ROE (b) Sources: SNL, Datastream, Consensus Economics and BdE. a. SSM cost of capital proxied by euro area cost of capital. b. ROE calculated using public data (SNL) for 114 SSM significant institutions. and low expected future profitability PRICE-TO-BOOK-VALUE RATIO OF THE BANKING SECTOR June 215 May 216 SPAIN ITALY FRANCE GERMANY EURO AREA EUROPE Source: Datastream. 3

4 2. CHALLENGES 2.1. Low interest rates Strong pressure on margins with non-linearities (the lower the interest rate, the higher the impact) NET INTEREST INCOME TO TOTAL OPERATING INCOME % SPAIN SPAIN GERMANY ITALY FRANCE SSM UNITED (Business in KINGDOM Spain) SEMI-ELASTICITY OF NET INTEREST INCOME TO 12-MONTH EURIBOR (a) Business in Spain, ID SOURCES: SNL and Banco de España. (Significant institutions) SOURCE: Financial Stability Report, May 216, Banco de España. a. The y-axis shows the semi-elasticity of net interest income to different levels of the 12-month EURIBOR in the range of.5-4, which are depicted on the x-axis. Semielasticity is defined as the rate of relative change in net interest income to a 1bp change in the 12-month EURIBOR. 4

5 2. CHALLENGES 2.2. Non-productive assets NPLs are still high in some countries. Although NPLs are imperfect indicators, since they ignore provisions and collateral. NPL RATIO TEXAS RATIO PROXY(a) % UK DE FR EU SSM Average Average (a) ES PT IT IE.4.2. UK DE FR EU ES Average SSM PT IT IE Average DECEMBER 214 JUNE 215 SOURCE: European Banking Authority. a. SSM countries include data for 15 out of 19 countries in the euro area. There is no data for Greece, Slovakia, Estonia and Lithuania. DECEMBER 214 JUNE 215 SOURCE: European Banking Authority. a. To calculate this proxy, NPL were divided by the sum of provisions and capital (including equity instruments eligible as CET1 and reserves). 5

6 2. CHALLENGES 2.3. Regulation i) The Basel agenda: challenge of making all the required adjustments without significantly increasing capital requirements ii) MREL: likely to be a binding constraint for medium-size non-listed financial institutions CORPORATE PORTFOLIO SUBJECT TO IRB. RWA DENSITY June 215 SSM SIGNIFICANT INSTITUTIONS BY OWNERSHIP STRUCTURE 1% 7% 6% 5% 4% 3% 2% 1% % DE ES FR IT NL UK TOTAL SOURCE: Financial Stability Report, May 216, Banco de España. 9% 8% 7% 6% 5% 4% 3% 2% 1% % LISTED COOPS& SAVINGS STATE OWNED NON SSM PARENT OTHER 59% have not issued any AT1 instruments 18% have not issued any T2 instruments Source: Banco de España 6

7 2. CHALLENGES 2.3. Regulation iii) MDA/SREP SSM approach for 216 SSM 215 APPROACH vs UK APPROACH. ESTIMATIONS FOR G-SIBs may evolve towards 12% requirements plus capital guidance: 1% 8% Combined Buffer CCB frontloading MDA MDA PILLAR 2B Requirements (relevant for the calculation of the MDA) 6% 4% 2% % PILLAR 2 REQUIREMENT PILLAR 2 REQUIREMENT PILLAR 1 CET1 Combined Buffer PILLAR 1 CET1 SSM 215 UK 215 Source: own estimations of MDA for G-SIBS in SSM area and UK from public sources Guidance (to be used when processing the impact of hypothetical scenarios) No change in requested capital, just divided differently between requirements and guidance. 7

8 3. EXPECTED REACTION BY THE INDUSTRY 3.1. Efficiency With low profitability, excess capacity needs to be corrected Taking advantage of new technologies. Proximity of banks depends less on physical proximity COST-TO-INCOME NUMBER OF OFFICES PER ONE THOUSAND INHABITANTS SPAIN SSM ITALY FRANCE UK GERMANY FRANCE GERMANY ITALY SPAIN UNITED KINGDOM (a) TOTAL EURO AREA SOURCE: SNL. SOURCE: ECB and World Bank. a. Data refer to

9 3. EXPECTED REACTION BY THE INDUSTRY 3.2. Fees on services End of cross-subsidiarisation of banking services. Fin-tech is a challenge but also an opportunity for banks NET FEE INCOME TO TOTAL OPERATING INCOME % SPAIN SPAIN (Business in Spain) GERMANY ITALY FRANCE SSM UK SOURCES: SNL and Banco de España. 9

10 3. EXPECTED REACTION BY THE INDUSTRY 3.3. Corporate operations Consolidation may be requested for an orderly correction of overcapacity. Ideally this is to be achieved at European level: it looks essential to have more pan- European banks to develop a fully effective risk-sharing mechanism. but in the short term, the need to cut costs will likely promote within-border mergers taking advantage of possible economies of scale. HERFINDAHL-HIRSCHMAN INDEX December 214 3, , 3. 2, , 2. 1, , 1. 5 High concentration Moderately concentrated Low concentration DE AT IT UK FR IE EA SOURCE : ECB. (a) The average for the euro area is calculated as the average of the HHI of each of the euro area countries, weighted by total assets. average (a) ES BE PT NL GR FI 1

11 THANK YOU FOR YOUR ATTENTION