In response to the ECB’s publication the Comprehensive Assessment results, Colin Brereton, economic crisis response lead partner at PwC, commented:
“The Comprehensive Assessment results are in, and although this should restore some confidence and stability to the market, we are still far from a solution to the banking crisis and the challenges facing the banking sector. The Comprehensive Assessment was only a one-off test of solvency, not of ongoing viability. The test of long-term viability is whether banks can generate sufficient returns to cover all their costs, including capital costs.“
“The point where many of Europe’s banks will be able to satisfy this long-term viability test is still a way off due to the prospect of continued weak economic conditions and low interest rates across Europe, an overhang of operating, compliance and restructuring costs, and mounting competitive threats from start-ups and non-bank challengers. The Comprehensive Assessment has bought time for some of Europe’s banks to get themselves in shape.“
“The immediate focus will be on those institutions that have failed the Assessment. They will need to raise additional capital, and shareholders will look for assurances on getting a return on that capital. All banks, including those that have passed the test, must offer a satisfactory return to their shareholders. For those banks in relatively better shape, there are potential growth opportunities.”
“Many banks are clear on the issues and challenges, and will relish the opportunity of the fresh start that the Comprehensive Assessment provides them. The winners will be those that are clear about what they’re good at, remain focused on their customers’ needs, have the resources and courage to invest and innovate, and have the conviction to cut and streamline where needed.
“Banks must be open to changes in the way they structure and fund their businesses. There will be continued pressure on bank balance sheets, including focus on capital, liquidity and leverage. The sustainability of banks will also be under supervisor scrutiny as part of their review and evaluation process, for which the Comprehensive Assessment is a starting point.
“The balance sheet restructuring process is ongoing as banks continue to offload non-core legacy assets, streamline their portfolios and seek funding efficiencies. There is an increasing focus on operational restructuring as they reduce costs and improve their agility through outsourcing and partnerships. A renewed focus on customer service is the ultimate priority. Hopefully, the Comprehensive Assessment will provide a clearer path now for many banks to move forward.”
Note to editor:
• PwC has worked with over 60% of banks in the Comprehensive Assessment exercise, either as “AQR auditors” for the National Competent Authorities (NCAs) (32 banks across 12 countries) or providing AQR bank side support (46 institutions across 10 countries). We have also advised banks on the stress test.
• The Comprehensive Assessment is a special prudential exercise performed by the ECB under a specific regulatory framework which differs in many important respects from International Financial Reporting Standards.
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