AFME Prudential Data Report Q4 2021 and Full Year 2021 | AFME

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Data Research
AFME Prudential Data Report Q4 2021 and Full Year 2021
21 Mar 2022
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Author Julio Suarez Director
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This report collates information on European GSIBs’ prudential capital, leverage and liquidity ratios with updated statistics as at 31 December 2021.

It also illustrates the recent performance of the debt and contingent convertibles (CoCo) markets and the funding structure for banks in Europe as at March 2022.

Among the main findings of this report:

  • CET1, T1, TLAC capital ratios increased in 2021: European GSIBs end-point CET1 ratio increased from 14.40% in 4Q20, to 14.48% in 4Q21.

    The 8bps increase in CET1 ratio was driven by earnings retention, which contributed 80bps, offset by growth in RWAs (predominantly credit risk RWAs) and other bank specific factors contributing to CET1 ratio by negative 35bps and 37bps respectively. Other bank specific factors include share buybacks and regulatory amendments (including reduction in IFRS9 relief and capital treatment of software).
  • CoCo borrowing costs increased in Q1 2022: Coupon rates of newly originated CoCos averaged 4.3% during 2021, which represented a decline from 5.1% in 2020FY.

    Most recently, during the first quarter of 2022, borrowing costs have increased with coupon rates rising to an average of 4.6% on the back of market volatility and higher risk premia, likely due to the ongoing geopolitical tensions and rising inflation expectations in the UK and the euro area.
  • Supervisory Treatment of Third Country Branches (TCBs): The Box on pages 21-26 discusses the European Commission’s CRD legislative proposal as it relates to the supervisory framework of TCBs in the EU.

    Third country institutions undertake a significant proportion of their activities in the EU, around 40% or €610 bn, through branches. This is, however, significantly lower than the €890 bn of business which is undertaken through subsidiaries. Likewise, EU headquartered banks make extensive use of branches, often with very significant balance sheets to access third countries. According to banks’ Pillar 3 disclosures, EU banks have approximately €3trillion of assets through their overseas branches and subsidiaries.

    There are a number of areas that legislators must consider carefully from the CRDVI proposal, including branch liquidity standards; reporting requirements; authorisation requirements; the calculation of risk thresholds; and, the expected supervisory framework.