United Kingdom (and EU regulation)

EBA reports on funding plans and asset encumbrance

The European Banking Authority (EBA) has published the following:

a report on funding plans. The purpose of the report is to assess the feasibility of EU banks’ funding plans submitted to the EBA. Among other things the report notes that the analysis shows that the non-performing loan (NPL) ratio is one important parameter in explaining banks’ loan growth, and there is a strong negative correlation between the NPL ratio and banks’ client loan growth forecast. According to the analysis, the correlation between NPL ratio and loan growth forecast is stronger for banks with lower capital ratios, which suggests that less capitalised banks are more sensitive to the NPL ratio than higher capitalised banks when considering extending new lending; and
a report on asset encumbrance. This report is the third edition of the annual EBA report on asset encumbrance and forms part of the ongoing commitment to monitoring the composition of funding sources across the EU. The report notes a slight increase in the level of asset encumbrance across the EU compared with last year’s figures. Also a relatively high level of encumbrance, as in previous years, is reported in jurisdictions with: (i) large and established covered bond markets (most notably Denmark and Sweden); (ii) a high share of central bank funding, in countries severely affected by the sovereign debt crisis (e.g. Greece); and (iii) a high share of repo financing and collateral requirements for over-the-counter derivatives (e.g. the UK).