To fully comply with the Basel III agreement on prudential banking requirements by 2028, European banks will need “€1.2 billion” in Tier 1 capital, said the Chair of the European Banking Authority (EBA), José Manuel Campa, on Monday 24 October.
An increase such as this would correspond to a “15%” increase in current prudential requirements, he told a hearing of the European Parliament’s Committee on Economic and Monetary Affairs.
Mr Campa also made reference to the introduction of the ‘output floor’ for European banks that use internal models to calculate their capital requirements (see EUROPE 13011/18). The legislative proposal being tabled is “pragmatic” and the provisions for spreading the impact of the introduction of the output floor should remain “ truly time-limited”, he insisted.
In these times marked by heightened uncertainty, the Chair of the EBA noted that the banking sector remained resilient with Tier 1 capital ratios (under the Basel III set of standards) at an average level of 15% with “ample” liquidity buffers (and LCR ratios at 164.9% and NSFR at 126.9%).
However, Mr Campa acknowledged that there were signs of a deterioration in bank loan quality, even though the level of non-performing loans (NPLs) as a proportion of total outstanding loans had fallen further in the first half of 2022. Specifically, the intermediate level of loans between the category of performing loans and that of NPL (IFRS 9 stage 2 loans level) is “now higher” than before the Covid-19 pandemic, he noted.
Responding to Eva Maria Poptcheva (Renew Europe, Spanish) and Stasys Jakeliūnas (Greens/EFA, Lithuanian) who asked him about the problems that vulnerable citizens and businesses have in repaying their loans, he advocated that consumers be allowed to make an informed choice between fixed and flexible rates when formalising their loans. For its part, the banking sector must act cautiously when granting credit, he added.
ESG. With regard to the monitoring of environmental, social and governance (ESG) risks, the Chair of the EBA emphasised how important it is that the prudential control of supervisory authorities remained “risk-based”. (Original version in French by Mathieu Bion)