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Industry roundup: 9 June

EBA releases EU-wide transparency exercise results

The European Banking Authority (EBA) has published the seventh EU-wide transparency exercise. This additional data disclosure comes as a response to the outbreak of COVID-19 and provides market participants with bank-level data as of 31 December 2019, prior to the start of the crisis. The data confirms the EU banking sector entered the crisis with solid capital positions and improved asset quality, but also shows the significant dispersion across banks.

EU banks reported increasing capital ratios in 2019. The EU weighted average CET1 fully loaded capital ratio was at 14.8% as of Q4 2019, around 40bps higher than Q3 2019. The trend was supported by higher capital, but also contracting risk exposure amounts (REA). As of December 2019, 75% of the banks reported a CET1 fully loaded capital ratio above 13.4% and all banks reported a ratio above 11%, well above the regulatory requirements. Compared to the previous quarter, the interquartile range remained stable.

The EU weighted fully phased-in leverage ratio stood at 5.5% as of December 2019. The leverage ratio increased by 30bps compared to the previous quarter, driven by rising capital and declining exposures. The lowest reported leverage ratio was 4.7% at country level, and 1.6% at bank level.

The asset quality of EU banks has been on an improving trend over the last few years. As of Q4 2019 the EU weighted average NPL ratio declined to 2.7%, 20bps lower than in Q3 2019. The Q4 2019 ratio was the lowest since the EBA introduced a harmonised definition of NPLs across European countries. Dispersion in the NPL ratio across countries remained wide, with few banks still reporting double-digit ratios, although in the last quarter the interquartile range compressed by 80 bps, to 3.1%.


Five previously-suspended firms reinstated to UK's Prompt Payment Code 

Five companies have pro-actively engaged with the Prompt Payment Code Compliance Board by submitting action plans outlining how they plan to achieve compliance and meet the commitments of the Code. The five companies reinstated are:

  • BT PLC
  • IBM
  • Kier Highways
  • Screwfix
  • Seddon Construction

Prior to being suspended from the Code, BT was paying 59% of invoices within 60 days and is now paying at 94%. IBM was paying 55% of invoices within 60 days and is now paying at 90%. Kier Highways was paying 79% of invoices within 60 days and is now paying at 98%. Screwfix was paying 18% of invoices within 60 days and is now paying at 91%. Seddon Construction was paying 19% of invoices within 60 days and is now paying at 92%.

Four of the companies reinstated are currently working towards paying 95% of all invoices to meet the code criteria.


ESMA fines Scope Ratings €640,000 for failings in covered bonds ratings 

The European Securities and Markets Authority (ESMA), the EU’s securities markets regulators, has fined Scope Ratings (Scope) €640,000, and issued a public notice, for breaches of the Credit Rating Agencies Regulation (CRAR) in relation to the systematic application of its 2015 Covered Bonds Methodology (CBM) and its revision. 

In both instances. ESMA says Scope committed the infringements negligently and failed to meet the special care expected from a credit rating agency (CRA) as a professional firm in the financial services sector. 

Scope was fined €550,000 for failure to apply methodology systematically, and €90,000 for failure in methodology revision. Scope may appeal against this decision to the Board of Appeal of the European Supervisory Authorities. Such an appeal does not suspend the fine, although it is possible for the Board of Appeal to suspend the application of the decision in accordance with Article 60(3) of the ESMA Regulation.

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