13 Jun 2018

Prudential Data Report Q1 2018

AFME is pleased to circulate its Q1 2018 Prudential Data Report.

This report collates timely information on EU GSIBs’ prudential capital, leverage and liquidity ratios with updated information as at 31 March 2018.

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

Among the main findings of this report:

  • The weighted average CET1, T1 and leverage ratios for EU GSIBs slightly declined during the quarter, due in part to permanent factors such as the implementation of the new accounting standard (IFRS9). The new accounting standard, effective from 1 January 2018, had a direct impact on classification and measurement of financial instruments’ fair values and impairment methodology.

  • EU GSIBs decreased their end-point CET1 ratio to 13.1% in 1Q 2018, from 13.4% in 4Q 2017. The implementation of IFRS9 in 1Q18 had a weighted average impact of -24 bps on CET1 ratio. This impact is estimated assuming full adoption of the new accounting standard (notwithstanding that some banks have adopted transitional measures).

  • End-point Tier 1 ratios decreased to 14.9% in 1Q 2018, from 15.1% in 4Q 2017.

  • End-point Leverage ratios (LR) declined from 4.9% in 4Q 2017 to 4.7% in 1Q 2018.

  • Liquidity Coverage Ratio (LCR) improved at 143.3% on a weighted average basis in 1Q 2018, from 140.3% in 4Q 2017.

  • Box 1 of this report (pages 22-26) summarises a recent AFME - PwC study on the “Impact of Regulation on Banks’ capital markets activities: an ex-post assessment”. Capital markets assets at a global level fell 39% from 2010 to 2016, with a more significant impact in some product segments like rates (-47%), credit (-50%) and equities (-43%). According to the study, regulation accounts for 67% of the total explained shrinkage in capital markets balance sheets of the banks in the study. Additionally, capital markets regulation costs 14 percentage points to banks’ capital markets ROE.

  • EU banks have raised a total of €10.9 bn in new capital in the form of follow-on offerings, contingent convertibles (CoCo), and other convertible securities in the first five months of the year. This compares with €35.7bn raised during the first five months of 2017.

  • EU GSIBs have continued to issue bail-inable senior non-preferred bonds, accumulating a total stock of €59.1bn as of 25 May 2018 (€26.4bn in 3Q17), as banks continue to prepare for the implementation of TLAC/MREL requirements.