Money Buzz! Europa

Tag: bank

  • Should banker bonuses be as high as they used to?

    Should banker bonuses be as high as they used to?

    In accordance with the most common stereotype, bankers of the highest sort should only drive the best cars and have small fortunes hidden in their high-end villas. But is that true, as we are witnessing yet another financial crisis in our lifetimes? Shouldn’t financial institutions have more restraint when it comes to paying bonuses to their bankers?

    As Andy Samu in his Disruption Banking piece indicates, the bonuses received by some of the best bankers in the business add up for astronomical sums. Or maybe this image has been planted in our heads by big Hollywood pictures, and the reality is not what everyone expects it to be? But whatever the truth is, the unprecedented year of 2020 must have turned things around for everyone, bankers included. How will their bonuses look now, in the era of COVID-19?

    Back in 2018, the CEO and Chairman of BlackRock, Laurence Fink, has started the debate about the salaries of the CEOs. In an annual letter to other CEOs from all over the world, he stated that society demands that all companies, public or private, work for the greater purpose, and not only in order to accumulate goods. Financial prosperity is not the only task they have to accomplish, because there is a lot of room for them to make something good for society as well.

    Then the global virus shook the world and all of a sudden another financial crisis hit almost every branch of every business. Following the words of Andrea Enria, the Chairman of European Central Bank, the financial sector must be really careful when it comes to paying bonuses, as he also stressed the importance of “extreme moderation” exercising in that matter. The Italian has since then gone on to put emphasis on banks’ role in fighting climate change too.

    New priorities for the global banking

    It looks like money may have been pushed further down the list of banks’ priorities, as more and more emphasis is being put on diversity, climate change, and making a valuable contribution to society.

    In 2020, the Bank of England has expressed that they expect all companies to send a special letter to HM Treasury, where they would commit to holding restraint with dividends payment, as well as with senior pay and distribution of capital. This of course is applicable only to the companies that are using Government’s loans, but their message is clear.

    The fortunes of bankers

    During the previous Finacial Crisis a lot of people were looking really carefully at Goldman Sachs’ actions, as they were helping AIG. Nowadays the subject of moderation has been irreversibly written into the agenda, so it is rather unlikely for companies now to act the same way.

    Many years later, Goldman Sachs’ UK head appeared to be one of Wall Street’s leaders of that time. He was also later dragged through the UK’s Parliament Select Committee, as he was questioned as part of the BHS investigation into Phillip Green. His name is of course Michael Sherwood, and his Wikipedia page says that he is now worth “only” £195, which is rather incomparable to Michael Platt’s £4.69billion.

    Down further in his article, Andy Samu stresses, how some companies like JPMorgan are now unable to pay big bonuses to their bankers, even though with the old agenda they would surely be applicable for them, as they managed to help their company gather great goods. To enter the original Samu’s piece, visit the following link: https://disruptionbanking.com/2020/05/21/extreme-moderation-or-restraint-how-will-bankers-bonuses-look-in-2020/

  • Intesa Sanpaolo wins ”Bank of the Year in Western Europe” award

    Intesa Sanpaolo wins ”Bank of the Year in Western Europe” award

    Intesa Sanpaolo has been awarded as ”Bank of the Year in Western Europe” and „Bank of the Year in Italy” by The Banker, the specialist publication of the Financial Times Group.

    The award marks the first time that an Italian bank has received the recognition as best bank in Western Europe.

    In its selection, The Banker’s panel of international judges considered Intesa Sanpaolo’s strong financial performance and the successful merger with UBI Banca.

    The panel gave particular importance to the vital role Intesa Sanpaolo has played in supporting the Italian economy and society throughout the COVID-19 pandemic.

  • Banks profits in Slovakia fell by almost half at the end of August

    Banks profits in Slovakia fell by almost half at the end of August

    The eight-month profit of Slovak banks amounted to EUR 254,3 million, according to National Bank of Slovakia data and cited by Ekonomika.

    Net interest income, which accounts for the largest part of the banking sector’s revenues, fell by 4.6% to €1.107bn.

    Profitability also fell for banks in Slovakia at the end of August. However, the pace of year-on-year decline slowed compared to July, from 51.4% to 43.1%. Provisioning and provisions increased significantly, from EUR 73,2 million to EUR 259,9 million.

    Banks expect the increased provisioning to continue into the next period.

  • US personal saving rate rockets 4x. Commercial banks deposits up by 15%

    US personal saving rate rockets 4x. Commercial banks deposits up by 15%

    Data gathered by Buyshares.co.uk indicates that the United States’ personal saving rate grew by at least four times between January and April 2020.

    According to the data, the rate stood at 33% as of April this year.

    In January, the rate was 7.9% before slightly rising to 8.2%. By March, it hit 13.1% before the April high.

    Before the 2020 spike, the highest rate was in December 2018 at 8.8% while the lowest rate was in December 2015 at 5.8%. Between June 2015 and December 2019, the rate remained fairly constant averaging at 7.2%.

    Commercial banks deposits up by 15%

    Buyshares.co.uk’s research also reviewed the United States commercial banks’ deposits.

    Between January and May this year, the rate grew by 15.22%. In January, the figure stood at $13.3 trillion while in May it was $15.32 trillion.

    In March, the deposit increased to $13.85 trillion a percentage increase of 3.5%. By April, the growing amount in deposits kept growing to stand at $14.72 trillion.

    From July 2015, the deposit has been undergoing an upward trajectory to grow by 42.58% by May this year.

    During the period under review, the lowest deposits held by US commercial banks were recorded in December 2015 at $10.92 trillion.

    The Buyshares.co.uk research report notes that most Americans who lost their jobs as a result of the pandemic were depositing checks from Federal unemployment benefits hence the spike.

  • Banks across CEE suffered a slump in profits over the first quarter of 2020

    Banks across CEE suffered a slump in profits over the first quarter of 2020

    Banks across Central and Eastern Europe (CEE) suffered a slump in profits over the first quarter of 2020 as the banks set aside provisions for the impact of the coronavirus crisis on loan quality, says latest Moody’s report.

    Hungary’s OTP Bank, reported a small quarterly loss. High provisioning charges and interest rates cuts will compress net interest income, in the coming quarters.

    Profitability pressure will be particularly acute for Czech and Polish banks due to aggressive rate cuts by their central banks. Efficiency will suffer as lower revenues meet banks’ rigid cost base

    Loan quality is stable so far

    The banks have not automatically classified loans benefiting from payment moratoriums as Stage 2 (riskier) loans under IFRS 9 accounting standards.

    Nevertheless, these riskier loans have increased at some banks. Moody’s expect further loan quality deterioration once the moratoriums expire.

    Hungarian banks will be hit hard by the government’s blanket payment moratoriums on all loans, meaning borrowers must opt out to be excluded. Hungary’s central bank MNB expects an opt-out ratio of around 30%

    Capital buffers show a mixed picture

    Czech banks’ risk-adjusted capital position improved in the first quarter, although capital to total assets declined. The remaining banks reported broadly stable capital ratios.

    CEE regulators have granted greater flexibility in capital management by reducing regulatory minimum capital requirements

    Funding and liquidity are stable

    Banks across all systems have ample access to liquidity through their central banks. Hungary, Poland and Romania have launched government bond purchasing schemes to support bond prices and reduced the regulatory reserve requirements, thereby increasing banks’ liquidity.

    In the Czech Republic the government has amended the law to allow for quantitative easing by the central bank, although no use has yet been made of the tool

  • Poland’s aggressive rate cuts are amplifying profitability pressure for banks

    Poland’s aggressive rate cuts are amplifying profitability pressure for banks

    Moody’s has recently published a report concluding that the Poland’s aggressive rate cuts are amplifying profitability pressure for banks.

    On 28 May, the National Bank of Poland lowered its reference rate by 40 basis points, bringing the rate down 140 basis points cumulatively with three rate cuts since 17 March to a historic low of 0.10%.

    Easing monetary policy is part of the authorities’ policy response to soften the negative effect of the coronavirus crisis. The interest rate cuts will significantly reduce Polish banks’ net interest margins and add to potential profitability pressures amid lower business volume and rising credit costs.

    By lowering interest rates, the central bank aims to support household income and domestic business finances, which have suffered from the coronavirus health crisis. The rate cuts will help loan repayment and debt affordability. However, because Polish banks are primarily deposit-funded, they have limited ability to fully pass on the lower interest rates to their customers to reduce their funding costs. Therefore, the sector’s relatively good net interest margins will, like euro area peers, be significantly pressured.

    The country’s leading banks announced the lower rates’ sizeable effect on their income statement

    Bank Polska Kasa Opieki S.A (PEKAO, A2 stable, baa11), the country’s second-largest bank, said that it expects the new lower rate to reduce its net profit by PLN650-PLN700 million, shaving off around 45 basis points from its net interest margin of 2.80% as of year-end 2019. The reduction equates to approximately 23% of its 2019 pre-tax profit.

    Powszechna Kasa Oszczednosci Bank Polski S.A. (PKO BP, A2/A3 stable, baa2), the largest bank, said that it expects 2020 net profit to decline by PLN750-PLN800 million, which accounts for around 8% of 2019 net interest income and 14% of pre-tax profit. According to our estimates, this would reduce the bank’s net interest margin to around 2.90% from 3.16% at year-end 2019.

    Poland’s third largest bank, Santander Bank Polska S.A. (A2/A3 stable, baa2) said that it expects the rate cuts to shave PLN635-PLN700 million off its net interest income, or approximately 10% of 2019 net interest income. According to our estimate, keeping all else constant, the decline in net interest income would reduce the bank’s pre-tax profit by about 20% and its net interest margin to around 2.90% from 3.23% as of year-end 2019.

    The rate cuts add to the pressure on the banks’ profitability. All three banks reported a significant 20%-50% reduction in profit for the first quarter of 2020 because of significantly higher credit costs tied to the coronavirus pandemic and resulting recession.

  • Moody’s changes outlook on five European banking systems to negative

    Moody’s changes outlook on five European banking systems to negative

    Moody’s has reviewed the outlooks on nine European banking systems in light of the coronavirus pandemic, and changed the outlook to negative on five of them.

    These are Norway, Finland, Hungary and Portugal, which changed to negative from stable, and Slovakia, which changed to negative from positive.

    The outlooks on four other banking systems – the Czech Republic, Poland, Austria and Ireland – remained stable.

    Today’s outlook changes reflect the likely consequences of the coronavirus outbreak in Europe. Moody’s projects a cumulative contraction of the economy over the first and second quarters of 2020. Although supportive fiscal and monetary policy measures will likely aid recoveries with above-trend growth in subsequent quarters and in 2021, the output loss in the second quarter is unlikely to be recovered. In this environment, banks’ problem loans will rise, and their increased loan loss provisions will reduce profitability. Most European banks’ profitability is already low relative to global peers.

    Still, in most of the banking systems, liquidity is strong and capital buffers are substantial, providing a solid base to absorb unexpected losses.

    The change in the outlook on the Norwegian, Finnish, Hungarian and Portuguese banking systems to negative from stable reflects Moody’s expectation that all four countries will experience a sharp contraction in economic growth. Banks’ profitability will weaken due to rising loan loss provisions and reduced lending growth.

    While Norwegian banks currently exhibit low volumes of non-performing loans and very high levels of capitalisation, and benefit from generous crisis support measures underpinned by the country’s sovereign wealth fund, the impact of the coronavirus on their asset risk will be exacerbated by the fall in oil prices.

    In Slovakia, where the outlook for the banking system has changed to negative from positive, the coronavirus-induced slowdown will reverse a previous improvement in asset quality. Slovakia’s high levels of household debt and significant dependence on exports could exacerbate the impact of the downturn.

    Moody’s has kept stable outlooks on the Czech, Polish, Austrian and Irish banking systems

    In the Czech Republic and Austria, the increase in problem loans will start from a low base, and stronger bank profitability than in many other European banking systems adds to resilience.

    The deterioration of loan quality in Poland will likely be moderate as lending growth has been relatively subdued.

    In Ireland, problems loans had been reducing rapidly due to restructurings and portfolio sales. However, Moody’s expect a delay in asset sales and an increase in new arrears. Even so, solvency is expected to remain strong.

  • UK banks approved nearly 1 million mortgages in 2019

    UK banks approved nearly 1 million mortgages in 2019

    Data gathered by Learnbonds.com indicates the United Kingdom’s banks approved 982.286 mortgages in 2019. This is an increase of 7.4% from 2018’s 909.597.

    According to the data, mortgage approval for home purchases increased by 8% for 2019 compared to the previous year. In total, 507.789 mortgages were approved for home purchases in 2019. The highest approval for home purchases was in July at 51.160.

    On the other hand, compared to 2018, there was a rise in remortgage approval for 2019 by 7.9%. Across the year, the total remortgages were 367,590. The highest remortgage approval was in October 38,549 while the least approval was in January at 23,618.

    For other borrowing avenues, there was an increase of 3% in 2019 compared to the previous year. Under this category mortgages, approval was 106,907 in 2019.

    The data further indicates that the entire market mortgage lending in 2019 was £265.8 billion following December’s £22.2 billion. The gross lending was 1.1% lower than in 2018.

    Under this figure, the high street banks’ lending was £172.1 billion to have a cumulative figure of £437.91 billion for 2019.

    The data shows that there was a spike in high street bank lending in October 2019 when lending stood at £25.1 billion.

  • General slowdown in the global economy despite central banks’ actions

    General slowdown in the global economy despite central banks’ actions

    With business morale being affected by a summer marked by a multiplication of areas of political uncertainty around the world, it seems likely that 2020 will be a year of economic decline.

    The Argentine currency crisis, major demonstrations in Hong Kong and Russia, Brexit, the attack on oil installations in Saudi Arabia – these are just some of the many events that marked the third quarter of 2019.

    Increasing political uncertainty, combined with the decline in the volume of world trade, the high volatility of oil prices, and the decline in automobile sales in Europe and China, has continued to affect corporate morale.

    Will manufacturing companies’ pessimism of spread to the rest of the economy?

    Today, in addition to European and Asian companies, American companies are also openly concerned about President Trump’s protectionist rhetoric. Although the Sino-American trade war seems to be moving towards a trade agreement between the two major global powers, the US President’s actions in the context of a campaign for re-election and an impeachment procedure remain difficult to predict.

    In addition, there are ongoing structural changes in the automotive sector, including emission standards in Europe and changes in consumer behavior in China. In this context, European economies are currently evolving at two speeds: some are particularly dependent on global industry and trade (Germany) and/or penalized by internal political uncertainties (Italy, United Kingdom), whereas the French, Spanish and Dutch economies seem more resilient.

    Central banks swing into action

    Central banks in the United States, the eurozone, and many emerging countries have taken stock of the situation. Indeed, as a result of the sharp slowdown in growth, many central banks have announced monetary easing measures.

    The effects of monetary policies that set negative nominal interest rates are uncertain. Negative policy rates can stimulate the economy with a boost to households and businesses, but they can also erode bank profitability. However, in theory, the positive effect on activity prevails. The expected impact of recent monetary easing measures, particularly in the eurozone, should therefore be real, even if these ultra-expansionist monetary policies have not allowed inflation to approach the target set recently by the countries that have taken this approach.

    Overall, due to this widespread political instability, Coface anticipates that 2020 will be marked by an economic slowdown, while continuing to detect many positive signals indicating that a wake-up call is happening, and that governments and central banks are mobilized to face it.

    In this context, two changes in country evaluations have taken place this quarter: Hong Kong (downgraded from A2 to A3) and Mauritania (upgraded from D to C). On a sector basis, after the series of downgrades in the automotive sector in June, there were fewer changes this quarter – but risks have still increased (13 downgrades but no upgrade), notably in the automotive sector (downgraded in three new countries) and in sectors depending on it (e.g. chemicals in Germany). Corporate credit risks are also on the rise in the paper sector in North America. Finally, there are new victims of the rise of trade protectionism (ICT sector in Korea)

  • European banks are safer, but debt is riskier

    The financials of European banks have strengthened over the last five years and their credit profiles have improved, but the debt they issue has become riskier, Money Buzz! learned from the latest Moody’s Report.

    This apparent paradox is due to European Union (EU) regulation governing bank failures, which requires banks to issue more junior forms of debt to protect senior liabilities from losses.

    European banks have become less risky over the past five years. The standalone creditworthiness of large European banks has improved, with the average baseline credit assessment of the largest rated EU banks rising by half a notch over the last five years, now averaging Baa2.

    Over the same period, the risk profile of debt issued by European banks has weakened. The average credit rating of debt issued by the same group of European banks has dropped one notch to Baa1 from A3.

    This is due to new bank regulation

    The EU bank resolution regime (the Bank Recovery and Resolution Directive or BRRD) establishes a process by which failing banks can be wound down in an orderly way. This in turn requires banks to issue a special layer of debt that is designed to be bailed in at a time of stress. The size of this debt layer for EU banks is determined by the Minimum Requirement for own funds and Eligible Liabilities (MREL) or for the largest global banks, their Total Loss Absorbing Capacity (TLAC).

    By absorbing losses in a resolution it protects senior debt holders, institutional depositors, and ultimately taxpayers from losses.

    Banks are issuing less low-risk senior unsecured debt and more higher risk nonpreferred senior debt. Large banks need to meet their regulatory MREL and TLAC requirement for bail-in-able debt and for most, this requires the issuance of more junior debt, typically from holding companies or in non-preferred senior form. Moody’s views these debt types closer in risk terms to subordinated debt instruments and we consider that the likelihood of government support is low. As a consequence, these debt instruments almost always have a lower rating than senior debt.