20141119 Madis Müller - financeestonia.eu¼ller...The$Comprehensive$Assessment$$ bythe$ECB...
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FinanceEstonia Forum 2014 Madis Müller 19 November 2014
Transcript of 20141119 Madis Müller - financeestonia.eu¼ller...The$Comprehensive$Assessment$$ bythe$ECB...
FinanceEstonia Forum 2014
Madis Müller
19 November 2014
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The decline in government bond yields driven by the accommoda4ve monetary policy
0%
5%
10%
15%
20%
25%
30%
35%
40%
2010 2011 2012 2013 2014
Interest rates on ten-‐year government bonds
Portugal
Ireland
Italy
Greece
Spain
Germany
Differences in the cost of borrowing for corporates remain substan4al
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0
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2
3
4
5
6
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8
2008Jan
2008Ap
r 2008Jul
2008Oct
2009Jan
2009Ap
r 2009Jul
2009Oct
2010Jan
2010Ap
r 2010Jul
2010Oct
2011Jan
2011Ap
r 2011Jul
2011Oct
2012Jan
2012Ap
r 2012Jul
2012Oct
2013Jan
2013Ap
r 2013Jul
2013Oct
2014Jan
2014Ap
r 2014Jul
Interest rates on long-‐term bank loans to the non-‐financial corporate sector
Cyprus
Germany
Spain
Greece (GR)
Ireland
Italy
Portugal
What has been driving the change in credit standards?
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-‐10
-‐5
0
5
10
15
Q3Q2Q1Q4Q3Q2Q1Q4Q3
201420132012
Changes in credit standards applied to the approval of loans or credit lines to enterprises; diffusion index
Cost of funds Risk perceptions Competition Credit standards -‐ actual
Source: ECB, Bank Lending Survey
Banks s4ll struggling with bad loans, while the weak economy adds pressure on profitability
5
-‐5%
0%
5%
10%
15%
20%
25%
2006 2007 2008 2009 2010 2011 2012 2013 1H 2014
Source: European Systemic Risk Board
Return on Equity of large EU banking groups
1-‐3 quarWle median
European Single Supervisory Mechanism (SSM) opera4onal from 4 November 2014
• new system of banking supervision for Europe • comprises of the ECB and naWonal supervisory authoriWes of euro
area countries • with an objecWve to ensure the safety and soundness of the
European banking system and increase financial integraWon and stability
• one of the two pillars of the EU banking union, along with the Single ResoluWon Mechanism
„We think that with the SSM, we have the best of both worlds: the exper4se of na4onal supervisors and also some distance in the decision-‐making process that will allow us to avoid na4onal bias.“
D. Nouy, Chair of the Supervisory Board of the SSM, interview with Äripäev (03/09/2014)
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The Comprehensive Assessment by the ECB suppor4ng the confidence in European banks
• The resilience of 130 of the biggest banks in the euro area as at the end of 2013 was analysed
• 25 banks had a shor`all in capitalisaWon of a total of 24,6 billion euros – 15,2 billion euros of this
already built up this year
• Estonian banks (Swedbank, SEB Bank and DNB Bank) passed the assessment successfully
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SSM median
-‐4%
-‐2%
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2%
4%
6%
8%
10%
12%
14%
16%
SI GR CY BE IE PT NL LU IT DE LT AT LV FI FR MT SK ES EE
Reduc4on in CET1 ra4o by country of par4cipa4ng bank -‐ adverse scenario
Source: ECB
Efforts to reinvigorate non-‐bank lending in Europe
• SecuriWsaWon: – the iniWaWves by:
• the AssociaWon of Financial Markets in Europe/European SecuriWsaWon Forum (AFME/ESF)
• the European Commission • the Bank of England’s and the ECB’s pro-‐securiWsaWon report
• EU Commission’s iniWaWve on the Capital Markets Union – a proposal with details yet to be developed
• The asset-‐backed securiWes purchase program and the covered bond purchase program by the ECB – potenWal posiWve spillover effects on all types of assets (incl. corporate bonds) – the total of 400 billion EUR of ABS and 600 billion EUR of covered bonds
qualify as purchasable assets – the programs will last at least two years
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Efforts to reinvigorate non-‐bank lending in Europe (cont.-‐d)
… while the growth in “shadow banking” has picked up already.
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Estonian banking sector strong in terms of capital and profitability
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0% 10% 20% 30% 40%
IT SE ES AT PT NL SI CY FR GR
euro area EU PL UK HU DE FI RO CZ BG SK BE LV LT DK IE HR LU EE MT
Source: ECB
Banks' Tier1 ra4o (2013)
-‐3,4% -‐8,0%
-‐1.0% -‐0.5% 0.0% 0.5% 1.0% 1.5% 2.0%
SI CY IE IT PT AT GR HU DE HR
euro area RO UK EU DK NL FR ES BE FI LU SE BG MT LV SK LT CZ PL EE
Banks' return on assets (2013)
Increase in domes4c savings in Estonia has con4nued
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0
500
1,000
1,500
2,000
2,500
3,000
3,500
2007 2008 2009 2010 2011 2012 2013 2014 EU
R million
Assets of investment and pension funds
third pillar pension funds second pillar pension funds real estate and hedge funds interest funds stock funds
0
2,000
4,000
6,000
8,000
10,000
12,000
2007 2008 2009 2010 2011 2012 2013 2014
EUR million
Bank deposits of corporates and households
other deposits Wme and saving deposits overnight and demand deposits
Source: EesW Pank
Do Estonian businesses have sufficient access to funding?
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-‐20%
-‐10%
0%
10%
20%
30%
40%
0%
10%
20%
30%
40%
50%
60%
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80%
90%
100%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Corporate sector debt liabili4es´ structure
domesWc financial sector domesWc non-‐financial enterprises other domesWc sectors foreign debt annual growth of debt (right scale)
Source: EesW Pank
Bank lending – no visible problems
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0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Factors limi4ng produc4on growth in industry
none demand labour equipment other financial
Source: European Commission
Capital markets – no visible progress The last IPO on the stock exchange in 2010; bond market sWll dormant
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0
50
100
150
200
250
0
1,000
2,000
3,000
4,000
5,000
6,000
2007 2008 2009 2010 2011 2012 2013 EU
R million
EUR million
Market capitalisa4on and monthly turnover of shares listed on the Tallinn
Stock Exchange
other stocks (lep scale) Tallinna Kaubamaja (lep scale) Tallinna Vesi (lep scale) Tallink Grupp (lep scale) Olympic Entertainment (lep scale) EesW Telekom (lep scale)
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400
600
800
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2007 2008 2009 2010 2011 2012 2013 2014
EUR million
EUR million
Total volume of bonds issued and new bonds issued quarterly
total volume of bonds issued (lep scale) issued new bonds (right scale)
But – early promising signs!
• The BalWc InnovaWon Fund (BIF): – EUR 200 million invested in BalWc private equity and venture capital
funds over 4 years • Review of regulaWon on investment funds
– drap legislaWon proposed by the Ministry of Finance • easier to start different types investment funds • review of investment constraints on pension funds, allowing for more investment in local assets
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• Do we need an acWve Estonian capital market or easy access to funding for Estonian companies? – room for more regional cooperaWon?
• Do we know where is the demand for alternaWve sources of funding for businesses most pressing? – access to equity and mezzanine probably more constrained than
straight debt? • Do we have local savings to meet that demand?
– seems to be the case… • How to make the demand and supply meet?
– necessary to educate both sides? • Role of the government
– focus on the regulatory framework rather than outright funds
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Ques4ons we s4ll need to discuss:
