european banking sector - facts and figures

8/12/2019 European Banking Sector - Facts and Figures

1/87

20308 64746 134652 -12502

172357 446623 75318

7 4 74 -4 4

-7 4 7 71 - 4

154746 287639 256383

-60213 -28845 188015 73886

87462 -120286 313721

4 1 7 7 -4 7

4417 7 4 27

439108 -15468 39924 222542

225202 137102

44991 241296 237813

4 2 - 47 7 -2 1

17 4 4144

-83360 -84225 -99645 293007-9984 433012 292727

357316 181542 -29631

204250 140855 463345

21 2 2 4 7

- 7 7

173098 276631 216510

-75125 -33097 22033 353652

184258 -5694 175623

4 5 7 66 -1 477

24 7 2 711

376480 436257 278156

149261 27696 461048

36119 342451 61597 56324

54465 375837 -27970

6 -615 1 657 16 15112597 257039 166614

72941 246442 -40121

-71414 428613 304030

110118 404591 398066

1667 5 4 4 45

152766 463069 331904

404883 298725 157246

32515 -76841 319964 24564

276360 200408 379106

182392 347264 410524

245756 128988 267000

44 24 11

065 -1 111 422617 202 33

324 45571 10815 2770 3

5 1 11 6 -5 6

7685 177864 252544 31 377

308 64746 134652 -125024 -78326

2357 446623 75318

7 46 74 -4 4 5 17 7

0 4 0087 2071 2 -85204 177 10

4746 28763 256383

0213 -28845 188015 73886 15130

462 -120286 313721 425052

28 0 1 7378 -4 037

1707 43 865 52733 -72743 45068

108 -15468 3 24 222542 35156

1 71

991 241296 237813 82243 -60229

2 -60347 385878 -20818 450300

0 46 341448

- 422 - 4 2 7 42 742

984 433012 292727 200234

7316 181542 -2 631

4250 140855 463345 -19538

5 5 4 7 47 55

50 -65507 38785 34321830 8 276631 216510 1053 2

5125 -330 7 22033 353652 -11782

4258 -56 4 175623

435 378066 -104772 155383

6057 258835 371155 -37050

6480 436257 278156 5 615

261 276 6 461048 352326

11 342451 615 7 56324 2433 4

465 375837 -27970

806 -61523 31 657 160158 76 68

25 7 25703 166614 341510

41 246442 -40121

1414 428613 304030 38417 -119758

0118 4045 1 3 8066 -82353

1667 358404 3045 2

2766 46306 331 04 205652

4883 2 8725 157246 274858

515 -76841 31 64 24564

6360 200408 37 106 34283

2392 347264 410524 -82446

European Banking Sector

FactsFigures

&


2/87

2

Credits

Editor Responsible:

Editor-in-Chief:

Authors:

Special thanks to:

Sub-editor:

Designer:

Guido Ravoet, EBF Chief Execuve

Florence Ranson, Head of [email protected]

Viktorija Proskurovska, Adviser, Economic [email protected] Working Group and Economic and Monetary AairsCommiee members

Elena Letemendia, Senior Policy Adviser, Export Credit & SMEs,European Banking Federaon

Anthony OBrien, Manager, Public Aairs, Irish BankingFederaon

Katarzyna Pawlik, Adviser, Economic Aairs and Regulaon,Polish Bank Associaon

Alison Bell, Editor, Economic and Monetary Aairs

Christophe Dmal, Junior ICT Coordinator, HR, Internal Aairsand Finance

Launched in 1960, the European Banking Federaon is the voice of the Europeanbanking sector from the European Union and European Free Trade Associaon

countries. The EBF represents the interests of almost 4,500 banks, large and small,wholesale and retail, local and cross-border nancial instuons. Together, thesebanks account for over 80% of the total assets and deposits and some 80% of allbank loans in the EU only.

The EBF is commied to supporng EU policies to promote the single market innancial services in general and in banking acvies in parcular. It advocates freeand fair compeon in the EU and world markets and supports the banks eorts toincrease their eciency and compeveness.

Use of pictures:Fotolia
http://localhost/var/www/apps/conversion/tmp/scratch_9/F.Ransonhttp://localhost/var/www/apps/conversion/tmp/scratch_9/ebf-fbe.euhttp://localhost/var/www/apps/conversion/tmp/scratch_9/V.Proskurovskahttp://localhost/var/www/apps/conversion/tmp/scratch_9/ebf-fbe.euhttp://www.fotolia.com/http://www.fotolia.com/http://www.fotolia.com/http://localhost/var/www/apps/conversion/tmp/scratch_9/ebf-fbe.euhttp://localhost/var/www/apps/conversion/tmp/scratch_9/V.Proskurovskahttp://localhost/var/www/apps/conversion/tmp/scratch_9/ebf-fbe.euhttp://localhost/var/www/apps/conversion/tmp/scratch_9/F.Ranson


3/87

3

European Banking Federaon a.i.s.b.l.

56 Avenue des Arts 1000 Brusselswww.ebf-e.euEBF September 2013
http://www.ebf-fbe.eu/http://www.ebf-fbe.eu/


4/87

4

Table of Content

Credits

Abbreviaons Used in the Report

Note from the AuthorsChapter 1 Size and Structure of the European Banking Sector

1. Number of banks, Bank Assets, Deposits and Loans2. Assets

3. Loans

4. Deposits5. Loan-to-Deposit Rao

6. Payments7. SecuriesChapter 2 European Economic Environment and Banking SectorPerformance

1. European Economy2. Bank Capital3. Banks Protability

Chapter 3 Stascal Portrait of Euro Area DepositsSummary

1. General picture2. Breakdown by Counterparty

2.a. Deposits from Non-Financial Corporaons2.b. Deposits from Households2.c. Deposits from Insurance Corporaons and Pension Funds2.d. Deposits from Other Financial Instuons

3. Broader PerspecveChapter 4 Finance for Internaonal Trade

1. Internaonal Trade and the Economy2. Structures of support for the Financing of Exports3. Troubled Times4. What Lies in the Future?

2

6

78

8

9

10

1416

1719

22

22

23

26

28

28

30

32

32

3436

37

39

4242434546


5/87

5

Chapter 5 Naonal ContribuonsBulgariaCyprusEstonia

GermanyHungaryIcelandLithuania

Latvia

MaltaNorwayRomania

Slovakia

Slovenia

SpainUK

Stascal Annex

4848505455575961

63

66

68

70

72

7480

83

85


6/87

6

Abbreviaons Used in the Report

CG central government

CI Credit Instuon1

DGS Deposit Guarantee SchemeEBA European Banking AuthorityECB European Central BankEUR euroGG general governmentHH householdsICPF insurance corporaons and pension fundsLTD Loan to Deposit RaoLTRO Long-Term Renancing OperaonMFI Monetary Financial Instuon2NFC non-nancial corporaonsNPL non-performing loansOFI other nancial instuonsRe rate the ECBs ocial renancing rate (a monetary policy instrument)

1 For reference: as dened by the ECB: credit instuonshall mean (a) an undertaking whosebusiness is to receive deposits or other repayable fundsfrom the public and to grant credits for itsown account; or(b) an electronic money instuon within the meaning of Direcves 2005/60/ECand 2006/48/EC on the taking up, pursuit and prudenal supervision of the business of electronicmoney instuons (source)2 For reference, as dened by the ECB: monetary nancial instuonsare nancial instuonswhich together form the money-issuing sector of the euro area. These include the Eurosystem,resident credit instuons (as dened in Community law) and all other resident nancialinstuons whose business is to receive deposits and/or close substutes for deposits from

enes other than MFIs and, for their own account (at least in economic terms), to grant creditand/or invest in securies. The laer group consists predominantly of money market funds.See also thisexplanaon. NB: all numbers presented for MFIs in this report are excluding theEurosystem.
http://www.ecb.europa.eu/stats/money/mfi/html/index.en.htmlhttp://www.ecb.europa.eu/stats/money/mfi/html/index.en.htmlhttp://www.ecb.europa.eu/stats/money/mfi/html/index.en.htmlhttp://www.ecb.europa.eu/stats/money/mfi/html/index.en.html


7/87

7

Note from the Authors

Welcome to the fourth European Banking Federaons publicaon the EU Banking

Sector Facts and Figures, the 2013 edion!

The structure of the report remains largely similar to the one of last year (hp://www.ebf-e.eu/uploads/FF2012.pdf), so the regular reader will feel at easenavigang through the document. The rst two chapters of the report cover thetrends in banking and the economy registered for 2012. This me the authors madean eort to expand the EU-level overview of banking sector gures with the data onsecuries, to be found at the end of Chapter 1, Secon 7. Special features, this year,focus on euro area deposits (Chapter 3) and on trade nance (Chapter 4).

In addion, authors are proud to present overviews of the naonal banking sectorsin Cyprus, Estonia, Germany, Hungary, Iceland, Latvia, Lithuania, Malta, Romania,Norway, Slovenia, Slovakia, Spain, and the UK, featuring in Chapter 5. This yearspublicaon completes the set of EBF Members naonal banking sector descripons;those of other EBF Members banking sectors can be found in the previous yearspublicaon.As last year, data for the EU27 Member States are taken from the European Central

Bank (Balance sheet of Monetary Financial Instuons: hp://sdw.ecb.europa.eu/browse.do?node=2018811, and Consolidated Banking Data: hp://sdw.ecb.europa.eu/browse.do?node=71390), unless stated otherwise. Data on the EFTA countriesbanking sectors is reported by the respecve EBF member associaons.

This report is available in electronic format on the EBF website (www.ebf-e.eu),

under Publicaons Stascs.
http://www.ebf-fbe.eu/uploads/FF2012.pdfhttp://www.ebf-fbe.eu/uploads/FF2012.pdfhttp://sdw.ecb.europa.eu/browse.do?node=2018811http://sdw.ecb.europa.eu/browse.do?node=2018811http://sdw.ecb.europa.eu/browse.do?node=71390http://sdw.ecb.europa.eu/browse.do?node=71390http://www.ebf-fbe.eu/http://www.ebf-fbe.eu/http://sdw.ecb.europa.eu/browse.do?node=71390http://sdw.ecb.europa.eu/browse.do?node=71390http://sdw.ecb.europa.eu/browse.do?node=2018811http://sdw.ecb.europa.eu/browse.do?node=2018811http://www.ebf-fbe.eu/uploads/FF2012.pdfhttp://www.ebf-fbe.eu/uploads/FF2012.pdf


8/87


9/87

9

Chapter1-Size

andS

tructure

ofthe

EuropeanBan

king

Sector

The turbulence also had an impact on banks nancial gures in 2012. Assetsshrankby 1.9% or EUR 863 billion. Total stock of loans in the EU fell by EUR 206 billion(0.8% of total stock of loans), while stock of depositsincreased by EUR 177 billion.These gures are a tangible manifestaon of the impact of nancial regulaon,

which eventually leads to deleveraging and restructuring of the banking sector.Next secons go into more detail on these, and other, parameters.

2. Assets

In 2012, total assets of banks operang in the EU fell by EUR 863 billion (1.9% oftotal stock). From the geographical perspecve, the largest contribuon to the fallin the stock of assets is aributable to the euro area (-2.5%) while the non-euro

area countries asset stock remained broadly unchanged.

Considering the country breakdown, a number of EU Member States experienceda signicant reducon in their stock of assets in 2012 (see Figure 3). The largestdecline in absolute terms - was registered in France: 316 billion (3.6% of Francestotal asset base), Germany: EUR 167 billion (2%), and the UK: EUR 149 billion (1.5%),followed by such countries as Ireland: EUR 143 billion (10.9%), Luxembourg: EUR140 billion (12.7%), and Belgium: EUR 113 billion (9.4%).

The negave trend was somewhat outweighed by strong asset growth in bothmature and emerging markets in Europe. In absolute terms, at the top is Italy: EUR155 billion (3.8% of naonal level bank asset growth), followed by Sweden EUR 73

billion (3.4%) and the Netherlands: EUR 64 billion (2.6%). In Eastern Europe, Polishbanks assets grew by close to 15% or EUR 45 billion (14.5%), Czech banks assetsincreased by EUR 12 billion (6.3%).

2007 2008 2009 2010 2011 2012

Non-euro area EU 12.4 11.5 11.7 12.2 12.8 12.8

Euro area 29.7 31.9 31.2 32.2 33.6 32.7

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

50.0

EURbillion

Figure 2: EU27 MFI total assets


10/87

10

3. Loans

Over the year 2012, the euro area banks stock of loansshrank by EUR 518 billion.At the same me, the non-euro area countries bank loans increased by EUR 312billion. The cumulave result for the EU27 is a -0.8% decline in the loan stock in2012.

2007 2008 2009 2010 2011 2012

EFTA 2.1 2.0 1.8 2.1 2.3 2.5

Non-euro area EU 5.8 5.2 5.8 5.8 6.0 6.3

Euro area 17.0 18.1 17.7 17.8 18.5 18.0

0.0

5.0

10.0

15.0

20.0

25.0

EURtrillion

Figure 4: Total loans

-15.0% -10.0% -5.0% 0.0% 5.0% 10.0% 15.0%

LUX

IE

NO

BE

EL

FIN

CY

FR

AT

LV

SL

HU

PT

DE

ES

UK

LT

CH

RO

DK

NL

SK

LIE

EE

IT

MT

CZ

SE

BG

PL

Figure 3: Changes in national MFI asset stocks, 2012, %


11/87

11

Chapter1-Size

andS

tructure

ofthe

EuropeanBan

king

Sector

Inter-bank lendingwas the EU banks counterparty that saw the biggest declinein loans: it shrank by over EUR 440 billion, or 6%, in 2012. The ECBs long-termrenancing operaons (LTRO) introduced about two years ago, are being graduallyphased out, and that has direct implicaons on inter-bank lending posions. Inaddion, ever scarcer collateral (which has become a very important factor for loan

provision) creates a negave impact on market making, not least for the inter-bankmarket.

Second largest decline in the stock of loans in absolute terms was registered forloans to businesses (NFC), which fell by over EUR 175 billion, or 3.2% in 2012.Such a gure may sound alarming; however, this fall in bank lending to NFC wasdwarfed by what corporaons received in non-bank nancing over the same period(see Chapter 1 - Secon 7 for more detail). It can be said that in 2012, large EU

companies did not suer from lack of funding sources.

The decline in the banks loan stock in the EU is a result of several phenomena,such as necessary deleveraging (imposed by the new EU nancial regulaon) andloan sale programmes of banks. This is parcularly important in countries wheretarget loan-to-deposit raos are imposed. Other reasons for the decline in loans arethat the rate of return for lending to businesses is simply not high enough, pushingsome banks to buy government bonds instead. That said, real lack in demand is yetanother explanaon to the observed SME lending trend.

The stock of loans for house purchase, and loans to other (non-MFI) nancialinstuonsgrew in 2012 by 1.2% and 5.5% respecvely.

2007 2008 2009 2010 2011 2012

Other loans 2.19 2.25 2.22 2.27 2.20 2.31

Loans to GOV 1.03 1.03 1.07 1.29 1.24 1.23

Loans to MFI 6.91 7.34 6.89 6.58 7.37 6.93

Loans to HH 6.80 6.57 6.88 7.34 7.47 7.55

Loans to NFC 5.29 5.60 5.43 5.41 5.44 5.27

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

EURtrillion

Figure 5: EU27 MFI Loan breakdown by

Counterparty


12/87

12

The EU27 naonal breakdownshows a lot of diversity in banks year-end lendingresults. Ireland, Greece, Luxembourg and Belgium registered the biggest decline inthe stock of loans in 2012 (-19.7%, -13.5%, -13.0%, and -10.0% respecvely).

For Ireland, bank lending to all counterpares declined (notably, inter-bank lending

shrank by a third and loans to government halved), except to households for housepurchase (the laer grew by 5.7%). In Greece, lending to all counterpares was inthe red in 2012 (interbank lending and loans to government shrank by over a thirdeach), except loans extended to other (non-bank) nancial instuons, which grewby 7.5%. In Luxembourg, lending to all counterpares but households (up by 7%)decreased. Similar picture was in Belgium, where only lending for house purchasegrew (by 5.6%).

This decline was compensated by the loan growth in Poland (15%), Estonia (9.7%),Sweden (8.4%) and the UK (5.2%).

In Poland, the biggest contribuon to loan growth was on the account of banklending to businesses and to households for house purchase, by 11% and 10.5%respecvely; smaller loan porolio counterpares grew substanally, too. Banksin Sweden also extended 8.8% more loans to households for house purchase and5.4% more to businesses; although their inter-bank lending was aected (-6.4%)

-15.0% -10.0% -5.0% 0.0% 5.0% 10.0% 15.0%

LV

HU

EL

ES

PT

LT

IT

EE

CY

BG

DK

SL

DE

AT

FR

CH

NL

UKFIN

BE

IE

LIE

MT

LUX

RO

NO

CZ

SE

PL

SK

Figure 6: Changes in stock of loans to households: for housepurchase and for consumer credit in 2012, %

Loans to households - consumer credit Loans to households - house purchase


13/87

13

Chapter1-Size

andS

tructure

ofthe

EuropeanBan

king

Sector

as in most other countries. In the UK, the biggest contribuon to loan growth wason the account of loans for house purchase (4.4%), as well as bank loans to other(non-bank) nancial instuons (6.2%); inter-bank lending shrank by over 8%. InFinland, bank loans to households grew by 5.6%. The growth in loans in Estonia ismostly owing to the phenomenon of 1.5 mes growth in inter-bank lending (from

just under one billion euro to over two billion euro).

It is interesng to consider the dynamics of the breakdown of the stock of loansto households. Figure 6 reects a very sporadic picture: while consumer creditisshrinking in the majority of the countries, loans for house purchaseseem to bemostly growing. In Latvia, Hungary, Greece, Spain, Portugal, Lithuania and Italy,the enre loan porolio to households is shrinking. In the Czech Republic, Poland,Sweden, Slovakia, Finland and Luxembourg, households seem to be borrowing

more for both purposes. In the rest of the countries (which represent half of EUmembership), the picture seems to be mixed.

According to the Consolidated Banking Data published by the European CentralBank, the mean of total gross doubul and non-performing loansacross the EUmember states has been steadily increasing over the past ve years. As a share oftotal debt instruments and advances, it has grown from just over 2% in 2008 to5.1% in 2012. For the euro area, the gures stand at 1.7% and 4.4% respecvely.

This indeed reects the fact that the socio-economic situaon is weak, prevenng

an ever larger share of borrowers to repay their loans, be it a private, instuonalor corporate client. This is part of the reason for an overall decline in the totalvolume of loans (see above): banks are more prudent with their clients. Certainly,

2007 2008 2009 2010 2011 2012

Median - euro area 1.7% 2.1% 3.6% 3.9% 4.4% 4.4%

Median - EU-27 2.1% 2.6% 4.3% 4.5% 4.9% 5.1%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

Figure 7: EU27 gross total doubtful and non-

performing loans, % of total debt

instruments and total loans and advances


14/87

14

the situaon across the EU Member States varies (see Figure 8). While the shareof non-performing loans increased in more or less all countries in Europe, in some,like Spain, Portugal, Latvia, Lithuania, Italy, Hungary, Greece, Cyprus and Bulgaria, itexploded over the past few years.

NPL raos of over 10% are certainly unsustainable, and need to be brought backto lower levels. This will be possible when the economic situaon stabilises, andthe enre set of new nancial sector regulaon is fully phased in. The process is

complex and current economic environment is not favourable, so it may take a fewyears before all EU Member States bring their NPL raos down. Moreover, it wouldalso be helpful to unify the denion of terms, such as non-performing loans (NPL),in order ensure that everybody refers to the same concept across all EU MemberStates (a task now being tackled in the context of seng up a new supra-naonalEU supervisory framework).

4. DepositsTotal stock of deposits in the EU grew by 0.5% in 2012, however, growth is onlyaributable to the non-euro area EU countries (by EUR 232 billion or 4.7% for the

FIN SE LIE NO MT DE UK NL EE SK DK AT FR BE CZ PL ES PT LV LT IT HU EL CY BG RO

2008 0.8 0.0 1.3 1.9 1.0 1.9 2.3 1.7 1.6 2.0 3.1 3.9 4.7 3.4 2.6 1.6 2.7 3.6 5.0 3.7 3.1 4.2 4.8 1.5

2012 0.8 0.9 1.4 1.5 1.7 1.7 2.0 2.6 3.0 3.8 3.9 4.3 4.5 5.1 6.3 6.4 6.4 7.0 7.9 10.9 11.0 16.9 17.8 19.5 19.8 0.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0

Figure 8: Gross total doubtful and non-performingloans, % of total debt instruments and total loans and

advances, by country


15/87

15

Chapter1-Size

andS

tructure

ofthe

EuropeanBan

king

Sector

region), while euro area banks stock of deposits declined by EUR 115 billion, or0.7%. (For a detailed analysis of euro area deposits, see Chapter 3).

Analysis of the EU banks major counterpares shows that the biggest decline inbanks deposit base took place within the inter-bankdeposits: they decreased byEUR 283 billion, or 2.2%. The only other counterparty whose deposit base shrankwas central governments: a fall of EUR 16.5 billion, or 7.2% in 2012.

On balance, EU deposits from non-monetary nancial instuons grew by a steady2.2%, of which deposits from corporatesincreased by a healthy 5.1% (or by EUR108 billion).

Country breakdownshows a disparate picture, just like with loans. The strongestgrowth in the deposit base was registered in Poland: an impressive 16.6%, whichwas mainly fuelled by deposits from the real sector. The same scenario occurs

in Sweden and Finland, where deposits grew by 11.8% and 9.6% respecvely. Inabsolute terms, the largest contribuon to growth in deposits was in the UK, wheredeposit base grew by EUR 133 billion (or 3.4%); this growth was, on the one hand,spurred by real economys increased deposits in the banking sector, and, on theother, weighed down by a drop in inter-bank deposit-taking.

In Ireland, drop in the stock of deposits in 2012 was signicant: EUR 105 billion,or 18.4%. This country is followed by Luxembourg, Belgium, and Germany (total

deposit base fell by 7.4%, 5.2% and 0.7% respecvely). The reason for the overalldrop in the stock of deposits in Belgium and Germany is that the decline in theinterbank lending was not suciently compensated by fresh deposits from other

2007 2008 2009 2010 2011 2012

EFTA 1.2 1.1 1.1 1.3 1.9 2.1

Non-euro area EU 4.7 4.3 4.7 4.8 5.0 5.2

Euro area 15.3 16.8 16.5 16.5 17.3 17.2

0.0

5.0

10.0

15.0

20.0

25.0

EURtrillion

Figure 9: Total deposits


16/87

16

counterpares (i.e. households, corporates, government, etc.). By contrast, inLuxembourg, the only counterparty with the growing deposit base is that of thenon-nancial corporaons, but the increase in this posion was not sucient to

compensate for the drop in all other ones.

5. Loan-to-Deposit RaoThe ever-more important Loan-to-Deposit Rao can be analysed with the help of

Figure 11.

The rao of loans to deposits in the sector of other than monetary-nancialinstuons has been gradually falling during the past ve years, reaching 113%in 2012. In other words, non-nancial sector has been reducing its balance-sheetleverage. On the other hand, the inter-bank Loan-to-Deposit rao has been lesssteady. Owing to the fact that inter-bank loan base fell much more rapidly than thedeposit base in 2012, the rao dipped to 99%.

It can be concluded from the above, that 2012 was a year of a reducon in the on-balance sheet banking sector leverage. This is in line with the general aim of the

-20.0% -15.0% -10.0% -5.0% 0.0% 5.0% 10.0% 15.0% 20.0%

NO

PL

SE

FIN

LT

EE

CZ

LV

BG

NL

HU

SK

LIE

CH

RO

DK

IT

UK

MT

ES

FR

DE

AT

SI

BE

PT

CY

EL

LUX

IE

Figure 10: Change in the MFI stock of deposits in 2012, %


17/87

17

Chapter1-Size

andS

tructure

ofthe

EuropeanBan

king

Sector

regulators, although the fact that lending to SMEs was in decline in 2012, the yearof negave economic growth, is not quite the perfect outcome no maer whichside one looks at it. Following a number of academic studies1, bank lending lagsbehind economic growth anywhere between 12 and 18 months, which means thateconomic expansion must be led by a strong and sustainable non-banking smulus

(such as innovaon, new trading partners, external demand, etc.) in order to getcompanies to start borrowing again to cater for new orders. This will spur newemployment and also help households consider taking on new loans. For this tohappen, a credible growth agenda needs to be put in place by the naonal and EUpolicy makers.

6. PaymentsConsidering all non-cash transacons in the EU last year, their number grew by

4.2%, and the volumeof money transacted grew by 6.3%. Given that the EU27GDP contracted in 2012, such growth in cashless transacons can be explained bythe fact that cizens and businesses increasingly turn away from using cash. This isreinforced by the fact that more businesses give clients an opportunity to pay withtheir cards: the number of points of sale (POS) grew by 10% in 2012, the number ofcard transacons at the POS by 8% and their value by 6.6%.

At the same me, the number of cash withdrawals in the EU27 fell by 0.2% over thesame period. In tune with that, the number of ATMs decreased by 0.4%, and thenumber of transacons made via the ATMs dropped by 1.7%.

1 Those studies include the EBFs EMAC paper on Pro-cyclicality and Macro-prudenal policy

(2011)

2007 2008 2009 2010 2011 2012

LDR (non-MFI) 125% 121% 118% 116% 114% 113%

LDR (MFI) 96% 93% 97% 99% 101% 99%

80%

85%

90%

95%

100%

105%

110%

115%

120%

125%

130%

Figure 11: EU27 loan-to-deposit ratio, %


18/87

18

Another increasingly unpopular means of payment is cheques. The number ofcheques wrien in the EU27 in 2012 decreased by 7.7%, and the value of thosecheques fell by 11.6%.

Of all non-cash transacons, the ECB reports that in 2012, the strongest growthwas in the numberof e-money purchase transacons (just over 18% compared

with 2011), followed by the number of card payment transacons (over 7% annualgrowth). In terms of valueof transacons conducted, e-money purchases grew byover 30% in 2012, credit transfers grew by 7.7%.

25,6

91

22,7

50

39,8

18

1,5

18

4,2

7

6

455

24,8

98

22,1

66

37,1

24

1,2

86 4

,63

1

446

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

Credit transfers Direct debits Card payments E-money

purchase

transactions

Cheques Other payment

instruments

Figure 12: Number of non-cash transactions,

breakdown by type, 2012 (million)

2012 2011

229,9

28

18,2

80

2,0

44

49 4

,864

1,2

02

213,4

72

18,0

80

1,9

14

38 5

,496

1,2

38

0

50,000

100,000

150,000

200,000

250,000

Credit transfers Direct debits Card payments E-money

purchasetransactions

Cheques Other payment

instruments

Figure 13: Value of non-cash transactions,

breakdown by type, 2012 (EUR billion)

2012 2011


19/87

19

Chapter1-Size

andS

tructure

ofthe

EuropeanBan

king

Sector

Compliance with SEPA2 (Single Euro Payments Area) is increasing in the EU. Forexample, SEPA Credit Transfers represented 35.6% of all credit transfers in December2012, and the number keeps rising steadily. SEPA direct debits represented 1.9%of all direct debit transacons. This number is relavely low owing to the fact thatmost of direct debit agreements are domesc (rather than cross-border) which

makes it less urgent to shi to the SEPA standard. Finally, over three quarters ofcard paymentsare SEPA compliant in the EU27.

7. SecuriesAccording to the ECBs Securies Issues stascs, total outstanding amount of debtsecuries issued in the EU27 grew by 2.7% in 2012 to EUR 22.8 trillion, somewhatslower than in the previous years.

The largest proporon of securies is issued by the naonal general governments,which at the end of 2012 stood at EUR 9.3 trillion or 41% of total debt securiesissued. The close second is the monetary nancial instuon sector, which tradesEUR 7.4 trillion or 32% of the EU total. The rest is shared between non-MFI nancialintermediaries (19%) and non-nancial corporaons, 8% of total.

Although starng from a low base, the total debt security issuance by non-nancialcorporaons has been growing strong over the past few years; i.e. between 2009and 2012 it grew by 28% or EUR 387 billion. This is more than double the declinein the total stock of bank loans to non-nancial corporaons (EUR 165 billion) over

the same period. Over 90% of NFC debt securies issued is long term (i.e. with the

2 Informaon extracted from here: hp://www.ecb.europa.eu/paym/sepa/about/indicators/html/index.en.html

2009 2010 2011 2012

EUR billion 20,248 21,149 22,237 22,833

% change 4.5% 5.1% 2.7%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

18,500

19,000

19,500

20,000

20,500

21,000

21,500

22,000

22,500

23,000

23,500

e

urobillion

Figure 14: EU27 securities other than

shares, excluding financial derivatives
http://www.ecb.europa.eu/paym/sepa/about/indicators/html/index.en.htmlhttp://www.ecb.europa.eu/paym/sepa/about/indicators/html/index.en.htmlhttp://www.ecb.europa.eu/paym/sepa/about/indicators/html/index.en.htmlhttp://www.ecb.europa.eu/paym/sepa/about/indicators/html/index.en.html


20/87

20

maturity longer than one year), and both short and long-term securies issues weregrowing at a similar pace.

The other fast-growing component of debt securies issues was generalgovernment: between 2009 and 2012 their total outstanding amount of debtsecuries grew by almost EUR 2 trillion. Lile wonder: governments are seekingto nance their structural reforms and support their naonal economies in thesedicult mes. Almost 90% of general governments debt securies issued are long-term. Since 2009, the EU Member States general governments were issuing long-term debt, while gradually phasing out the short-term debt security segment.

The outstanding amount of quoted sharesat the end of 2012 was almost EUR 7.5trillion (see Figure 14). Aer a fall in the volume of quoted shares in 2011 by 14%,2012 saw a steep rise of 16% (or over EUR 1 trillion), eventually leading to a newall-me high in the quoted shares in the EU.

2008 2009 2010 2011 2012

EUR bn 5,170 6,818 7,474 6,444 7,483

% change 32% 10% -14% 16%

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

Eurobillion

Figure 16: EU27 quoted shares

2009 2010 2011 2012

GOV 7,310 8,240 8,955 9,266

MFI 7,475 7,381 7,581 7,420Non-MFI FI 4,100 4,146 4,203 4,397

NFC 1,363 1,383 1,498 1,750

0%

10%

20%

30%

40%

50%

60%

70%

80%90%

100%

eurobillion

Figure 15: EU27 Securities other than

shares, excluding financial derivatives


21/87

21

Chapter1-Size

andS

tructure

ofthe

EuropeanBan

king

Sector

As expected, over 80% of all quoted shares belong to non-nancial corporaons,i.e. to large EU corporates (see Figure 15), and in 2012 this posion grew by 15%or EUR 783 billion. That, combined with securies issued by NFC in 2012, the non-bank nancing acquired by EU companies totalled EUR 1,035 billion.

Volumes for all other issuers of quoted shares grew by between 20 and 30% during

that period.The strong growth in debt securies and issuance of shares by non-banks indicatesthat these sources of liquidity / nance are becoming strongly complementary tobank nancing.

2009 2010 2011 2012

ICPF 186 190 155 200

Other FI exc. ICPF 632 676 532 645

Other MFI 693 607 454 552

NFC 5,306 6,001 5,304 6,086

0%

10%20%

30%

40%

50%

60%

70%

80%

90%

100%

EURbillion

Figure 17: EU27 quoted shares bycounterparty


22/87

22

- Chapter 2 -European Economic Environment and Banking

Sector Performance

This years report points at a connued general trend of shrinkage and disintegraonof the European banking sector. The economic situaon is less than favourable;

dierent naons within the EU take dierent approaches to dealing with thechallenges. To generalise, the euro area banking sector is taking the strongest hit(banking presence has increased in terms of numbers and nancial acvity), whilethe non-euro area banks are faring well. Within the euro area, banks hardest hitcounterpares are: inter-bank lending and loans to businesses. These trends arented by the EU nancial services regulaon which is being progressively phased inby the industry. While banks are struggling to perform despite the reforms and grimeconomic environment, non-bank nancing is ourishing.

1. European EconomyAer a modest recovery in 2011, European economy fell back into recession in 2012.Aside from such programme countries like Greece, Portugal and Cyprus, negaveGDP growth was registered in Italy, Slovenia, Hungary, Spain, Czech Republic,the Netherlands, Denmark, and Belgium (see Figure 18 for more detail). Frencheconomy ended the year with zero growth. Fastest growing EU economies last yearwere the Balc States, Slovakia and Poland. All EFTA countries registered steady

posive growth: anywhere between 1 and 3%.

-8.0 -6.0 -4.0 -2.0 0.0 2.0 4.0 6.0 8.0 10.0 12.0

Greece

Portugal

Slovenia

Italy

Cyprus

Hungary

Spain

Czech Republic

Netherlands

Finland

Denmark

Belgium

France

United Kingdom

Luxembourg

Germany

Romania

Bulgaria

Malta

Ireland

Austria

Sweden

Switzerland

Liechtenstein

Iceland

Poland

Slovakia

Norway

Lithuania

Estonia

Latvia

Figure 18: GDP growth, % per annum

2012 2011


23/87

23

Chapter2

EuropeanEcono

micEnvironmen

tandBankingSe

ctorPerformanc

e

Although negave risks have recently somewhat receded, the European economymay take a long while to recover and it will need an eecve growth strategy togive a strong impetus for re-starng sustainable business acvity. A prospect ofprolonged below-potenal growth, compounded with ageing populaon and heavydebt burdens in all sectors of the economy, present a formidable challenge to the

EU policy-makers.

2013 is yet another year of contraconaryscal policyright across the euro areaperimeter. A number of European governments made a substanal eort to reducegovernment spending and achieve a primary budget surplus. This eort yieldedsome fruit: aer -4% decit in 2012, both this year and next are expected to resultin a less than 3% government budget (cyclically unadjusted) decit. That said,more eort is required to bring budgets to an actual balance or even surplus, in

order to escape from the downward spiral of debt accumulaon. This may lead to aprolonged period of stringent scal discipline, leaving the private sector on its ownin an aempt to restart economic growth in the euro area, while trying to supporteconomic growth with a sounder scal environment in the medium term.

Prolonged crisis in the EU is the reason for which thegovernment debt has climbedto 85.2%. This phenomenon is inevitable in the context of a connued crisis, aswell as governments being in the middle of the process of budget consolidaon. Toget the EU economy into a healthy state, the level of public debt must come down

signicantly, and this will take a while. Prolonged scal austerity is considered to bepolically unacceptable. Economic growth, coupled with the objecve of a primaryscal surplus, would help bring down the debt rao, a welcome developmentfor all pares involved. Essenally, this is the goal that the EU Treaty on Stability,Coordinaon and Governance1 in the Economic and Monetary Union (also knownas scal compact) interaliatries to achieve.

The ongoing deleveraging in the nancial and corporate and household sectors,

weak condence and nancial market tensions keep economic acvity muted in theeuro area. Lack of enthusiasm from domesc consumers and producers is reectedin various economic parameters. At the end of 2012, the unemployment levelreached 10.8% in the EU and is expected to remain persistently high at around 11%in 2013. The unemployment level remains high because euro area companies arenot recruing. They are facing a high degree of uncertainty about the developmentof their naonal economy, the soundness of the nancial system and even aboutthe future of EMU. Since the domesc near-term prospects do not appear bright,

most European companies are not developing new business (nor are they takingon new bank loans for investments). Todays level of industrial producon is mainly

1 See hp://www.european-council.europa.eu/home-page/highlights/scal -compact-enters-into-force-on-1-january-2013?lang=en
http://www.european-council.europa.eu/home-page/highlights/fiscalhttp://www.european-council.europa.eu/home-page/highlights/fiscal


24/87

24

supported by export markets which develop at a healthier rate than those of thehome economy. As a result, exports are growing at a faster pace than imports,which helps improve the EU trade balance.

The lowest level of unemployment last year in the EU was registered in Austria (4.3%),

followed by Luxembourg (5.1%), the Netherlands (5.3%) and Germany (5.5%). Aspecial menon must be made of the three EFTA countries: Norway, Switzerland,and Liechtenstein, where unemployment rate is remarkably low: between 2.4 and3.5%. The fourth EFTA country, Iceland, registered 6% unemployment rate in 2012,which is a very good result for a country coming out of a serious crisis (see Seconon Iceland in Chapter 5). At the other end of the spectrum are the programmecountries: Spain (25%), Greece (24.3%), Portugal (15.9%), and Ireland (14.7%).Having just come out of the woods, Latvia is also part of the heavily hit labour

market segment with the unemployment level of 14.9% at the end of 2012. Lack ofnew work placements results in cizens spending and invesng less. Followed by adecline inconsumer spending by 1.3% in 2012, it is expected to contract further by0.8% this year.

One of the key stabilising elements for the European economy was the announcementof the European Central Bank to do whatever it takes to preserve stability. TheOutright Monetary Transacons Programme2 (OMT) in secondary sovereign

bond markets, which was announced to safeguard an appropriate monetary policytransmission and the singleness of the monetary policy, did not need to be acvated;its mere announcement in August 2012 was sucient to stabilise the markets. Of

2 hp://www.ecb.europa.eu/press/pr/date/2012/html/pr120906_1.en.html

LIE CH NO A T LUX NL DE IS MT CZ RO DK BE F IN UK SE SL PL EE FR IT HU CY BG LT SK IE LV PT EL ES

2011 2.3 2.8 4.2 4.8 4.4 5.9 7.1 6.5 6.7 7.4 7.6 7.2 7.8 8.0 7.8 8.2 9.7 12.5 9.6 8.4 10.9 7.9 11.3 15.3 13.7 14.7 16.2 12.9 17.7 21.7

2012 2.4 2.9 3.5 4.3 5.1 5.3 5.5 6.0 6.4 7.0 7.0 7.5 7.6 7.7 7.9 8.0 8.9 10.1 10.2 10.3 10.7 10.9 11.9 12.3 13.3 14.0 14.7 14.9 15.9 24.3 25.0

0

5

10

15

20

25

Figure 19: Unemployment rate, % of total labour force
http://www.ecb.europa.eu/press/pr/date/2012/html/pr120906_1.en.htmlhttp://www.ecb.europa.eu/press/pr/date/2012/html/pr120906_1.en.html


25/87

25

Chapter2

EuropeanEcono

micEnvironmen

tandBankingSe

ctorPerformanc

e

other measures, the ECB lowered its main renancing rate3 to 0.75% in July 2012,followed by another cut by 0.25 basis points in May 2013.

During the spring 2012, the Euriborrates dived again below the key re rate, owingto lack of inter-bank lending acvity (see Secon 1.3, above). Essenally, this pointsto the fact that it is the deposit rate which is the leading reference rate in the euro

area at the moment. Given such low margins between the lending and the depositrate, banks prots from lending acvies are squeezed. At any rate, banks are nowmore conscious about risk management than about volumes of lending, whichis also reected in the data presented in Chapter 1. This leads to banks hoardingplenty of liquidity which they receive from the ECB, and sngy lending pracces. Itis clear that commercial banks dependence on the ECB liquidity provision shouldbe phased out in order to restore the interbank market acvity and movate banksto re-start lending to the economy.

2. Bank CapitalFigure 21 quanes the eort of European banks to strengthen their Tier1 capitalbase over the past year. With the excepon of Cyprus and Greece, every othercountrys banks have improved their Tier 1 capital rao, according to the EuropeanCentral Banks Consolidated Banking Figures. In 2012, the calculated median of thenaonal Tier1 raos of all banks operang in the EU27 member states was 13.8%, a

vast improvement compared to the 9.6% in 20084

.

3 hp://www.ecb.europa.eu/stats/monetary/rates/html/index.en.html 4 Tier1 rao of EU domesc banking groups and standalone banks (i.e. excluding non-EUsubsidiaries and non-EU branches), published by the ECB, was at 12% in 2012, up from 8% in2007. (source)

0

1

2

3

4

5

6

Feb-07

Apr-07

Jun-07

Aug-07

Oct-07

Dec-07

Feb-08

Apr-08

Jun-08

Aug-08

Oct-08

Dec-08

Feb-09

Apr-09

Jun-09

Aug-09

Oct-09

Dec-09

Feb-10

Apr-10

Jun-10

Aug-10

Oct-10

Dec-10

Feb-11

Apr-11

Jun-11

Aug-11

Oct-11

Dec-11

Feb-12

Apr-12

Jun-12

Aug-12

Oct-12

Dec-12

Feb-13

Apr-13

Jun-13

Aug-13

Figure 20: ECB rates & Euribor benchmarks, %

ECB Main refinancing rate ECB Deposit facil ity 3-month Euribor 6-month Euribor
http://www.ecb.europa.eu/stats/monetary/rates/html/index.en.htmlhttp://sdw.ecb.europa.eu/quickview.do?node=71390&SERIES_KEY=231.CBD.A.V1.11.A.74002.X.X.Z5.0000.Z0Z.Fhttp://sdw.ecb.europa.eu/quickview.do?node=71390&SERIES_KEY=231.CBD.A.V1.11.A.74002.X.X.Z5.0000.Z0Z.Fhttp://www.ecb.europa.eu/stats/monetary/rates/html/index.en.html


26/87

26

Owing to connued business-related and regulatory challenges, banks have beenstruggling to improve their eciency. As a result, the calculated median of cost-to-incomerao of all banks operang in the EU27 at the end of last year inched upto 58.6%, from 58.3% in 20115. The most remarkable improvement was registeredin Luxembourg (by over 10 percentage points), Denmark (6.3 p.p.), Malta (6.1 p.p.)and Austria (4.2 p.p.). The eciency rao notably worsened in Ireland, Hungary,Greece and Slovakia (NB: costs here include provisions).

3. Banks ProtabilityEuropean banks gures on the Return on Equity remain weak. Figure 23 shows thatin 2012, the calculated median value of all return on equity of all banks operang inthe EU, as registered by the ECB, was a meagre 3.4%6.

5 Cost-to-Income rao of EU domesc banking groups and standalone banks (i.e. excluding non-EU subsidiaries and non-EU branches), published by the ECB, was at 65.8% in 2012, up from

62.4% in 2011. (source)6 Return on Equity of EU domesc banking groups and standalone banks (i.e. excluding non-EUsubsidiaries and non-EU branches), published by the ECB, was at -1.6% in 2012, compared with10% in 2007. (source)

CY EL SL ES IT AT SE PT NO UK NL PL HU FR DE LV LT RO SK CZ BG BE FIN DK IE LUX CH IS LIE EE MT

2011 7.0 9.3 10.3 9.5 10.3 10.9 8.6 10.7 11.8 11.9 11.3 10.9 11.7 13.5 12.0 14.2 12.5 13.6 15.7 15.1 13.7 14.9 16.7 15.3 15.8 17.2 18.5 52.2

2012 6.2 8.0 9.8 9.8 10.5 11.0 11.3 11.3 12.2 12.3 12.3 13.1 13.3 13.3 13.8 14.5 14.6 14.8 14.9 14.9 15.1 15.9 16.3 16.7 16.7 18.6 19.3 19.5 19.8 22.8 49.6

0.0

5.0

10.0

15.0

20.0

25.0

30.0

Figure 21: Tier1 capital, %
http://sdw.ecb.europa.eu/quickview.do?node=71390&SERIES_KEY=231.CBD.A.V1.11.A.72100.X.X.Z5.0000.Z0Z.Fhttp://sdw.ecb.europa.eu/quickview.do?node=71390&SERIES_KEY=231.CBD.A.V1.11.A.72003.X.X.Z5.0000.Z0Z.Fhttp://sdw.ecb.europa.eu/quickview.do?node=71390&SERIES_KEY=231.CBD.A.V1.11.A.72003.X.X.Z5.0000.Z0Z.Fhttp://sdw.ecb.europa.eu/quickview.do?node=71390&SERIES_KEY=231.CBD.A.V1.11.A.72100.X.X.Z5.0000.Z0Z.F


27/87

27

Chapter2

EuropeanEcono

micEnvironmen

tandBankingSe

ctorPerformanc

e

The situaon in EU Member States is very varied. Banks in a number of countriesare struggling with the negave return on equity: Cyprus, Greece, Spain, Slovakia,Ireland, Romania, Hungary, and Portugal. Dicules are related to such aspects assector restructuring and cost eciency, as well as lack of growth in the real sector.On the other hand, double digit returns on equity were registered in Estonia, Polandand Czech Republic. Figure 23 gives a detailed account of the situaon.

2007 2008 2009 2010 2011 2012

EU27 ROE, % 10.02 -2.78 1.02 3.90 -0.78 -1.55

-4.00

-2.00

0.00

2.00

4.00

6.00

8.00

10.00

12.00

Figure 23: EU27 banks' ROE, %

-90.0 -70.0 -50.0 -30.0 -10.0 10.0 30.0

CY

ELES

SL

IE

RO

HU

PT

IT

CH

DE

UK

DK

BE

FR

AT

NL

LIE

BG

MT

LV

LUX

SK

FIN

SE

LT

PL

NO

CZ

EE

IS

CY EL ES SL IE RO HU P T IT CH D E U K DK BE FR AT NL LIE B G MT L V LUX SK F IN S E LT PL NO C Z EE IS

2012 -90 -76 -24 -19 -14 -6. -5. -4. -0. 0.1 1.1 1.9 2.0 3.3 3.4 4.1 4.2 4.7 4.9 5.7 6.0 7.5 8.1 9.1 9.6 9.7 10. 11. 14. 14. 16.

2011 -86 -0. -11 -11 1.1 -12 -4. -13 8.5 2.2 4.2 0.6 1.4 5.6 1.5 6.2 2.9 4.6 3.9 5.1 3.6 11. 8.1 10. 17. 12. 11 13. 25.

FIgure 24: Return on Equity, %


28/87

28

- Chapter 3-Stascal Portrait of Euro Area Deposits

This chapter is wrien based on the data published by the European Central Bankon the deposits in Monetary Financial Instuons operang in the euro area. Thedata was extracted in August 2013, so the breakdowns presented below are all for

the most recent available period at the me: June 2013. The chapter does not dwellon naonal comparisons, but rather looks at deposits in the euro area as a whole.The more curious minds willing to study naonal gures are welcome to consultthe ECBs Stascal Data Warehouse page, using the following link: hp://sdw.ecb.int/browse.do?node=2019191.Special thanks to Anthony OBrien (Irish BankersFederaon, [email protected]) for the inspiraon and signicant contribuonto the draing of this chapter.

SummaryMonetary Financial Instuons (MFI) operang in the euro area hold deposits to thetune of EUR 17,115 billion. The euro area deposit base has been growing steadilysince 2006 by 38%. Domesc deposits have been growing faster than deposits fromother euro area member states.

Key depositors are: governments (CG), monetary nancial instuons (MFI),businesses (NFC), households (HH), insurance corporaons and pension funds

(ICPF) and other nancial instuons (OFI). The table below shows the breakdownof these counterpares main deposit types.

A detailed breakdown for deposits from governments and MFIs counterparesis not available. Thus, based on the available breakdown of Monetary Financial
http://sdw.ecb.int/browse.do?node=2019191.http://sdw.ecb.int/browse.do?node=2019191.mailto:[email protected]:[email protected]://sdw.ecb.int/browse.do?node=2019191.http://sdw.ecb.int/browse.do?node=2019191.


29/87

29

Chap

ter3

StascalPortraitofEuro

AreaDeposits

Instuons non-MFI counterpares, the following conclusions can be drawn.From the counterpares behavioural point of view, corporates and householdsenjoy the freedom of parking their cash in banks and the ability to take it out assoon as they need it. The share of term deposits in these two counterpart sectors isrelavely low, and can be characterised as mostly short term. Insurance corporaons

and pension funds, as well as other nancial instuons prefer to deposit their cashsafely in banks for a longer period of me. OFIs are also heavy on repos.

This means that out of EUR 17,115 billion of euro area deposit liabilies, only EUR2,363 billion (15%) are with the maturity of over 2 years; EUR 370 billion are ofmaturity under 1 and below 2 years, and only EUR 90 billion are redeemable at over3 months noce.

By contrast, at least EUR 4,157 billion are overnight deposits, while EUR 1,254billion are deposits with agreed maturity of under 1 year and EUR 2,087 billion areredeemable at under 3 months noce.

The gures presented above give a glimpse of the scale of euro area banks acvityof maturity transformaon, which is necessary in order to manage the generallyshort-term and liquid nature of deposits versus the generally long-term and lessliquid nature of loans.

From the point of view of stability of funding, euro area banks non-MFI deposits,which could be considered long term, represent only a quarter of the total depositbase as recorded on the balance sheet1. At the same me, three quarters of depositsare overnight, so in order to put those EUR 7.5 trillion to use, banks must performtheir job of maturity transformaon praccally on a daily basis. Indirectly, this factpoints out to the important need for banks to be able to access inter-bank marketsin order to successfully perform their basic dues.

It is important to keep in mind that households are very sensive to changes ineconomic situaon, and when growth halts, non-nancial private sector saving ratedrops signicantly, too (although remains posive). This phenomenon was observedin the current crisis period, starng in 2009. Moreover, having gone through an eraof debt accumulaon, euro area private sector has now changed its course and hastaken a path of incremental reducon of its debt mountain. This implies that part ofretained earnings goes to paying o debt, rather than deposit making.

A nal word must be said about the impact of regulaon on euro area deposits. Theexact formulaon of the Deposit Guarantee Scheme Direcve (of course, taking also

1 If it were possible to include the MFI deposits and those from the Central Government, theproporon may have been dierent.


30/87

30

into account the speed at which the EU economy will revive) will dene the shiin behaviour of economic agents, not least in their decisions about reallocaon ofthe non-guaranteed part of their cash: investment into property, buying shares orbonds, or simply migrang to an overseas bank account.

1. General pictureEuro area Credit Instuons counterpares can be broken down into:

a. Central Governments (CG) who hold in deposits EUR 209 billion, or 1% oftotal euro area deposits;b. Monetary Financial Instuons (MFIs, i.e. inter-bank deposits) hold EUR5,889 billion in deposits, or 35% of the total euro area deposits; and

c. Non-MFIs, a big grouping of non-nancial corporaons (NFC), households(HH), insurance corporaons and pension funds (ICPF), and other nancialinstuons (OFI), which together account for EUR 11,017 billion in deposits,which is 64% of the total.

Over the past seven years (between Q1-2006 and Q1-2013) euro area creditinstuons total deposits grew by 38%, of which deposits from CG grew by 41%,deposits from other MFIs grew by 18%, and those from non-MFIs, grew by 50%,the actual driving force of the deposit base expansion.

Euro area Credit Instuons accept deposits also from residents who live outsidethe euro area. The graph below shows that deposits from residents outside the euro

NFC, 1.8, 10%

HH, 6.2, 36%

ICPF, 0.7, 4%OFI, 2.1, 13%

CG, 0.2, 1%

MFI, 6.1, 36%

Figure 25: Euro area Credit Institutions' deposits

- by counterparty, EUR trillion, June 2013

NFC

HH

ICPF

OFI

CG

MFI


31/87

31

Chap

ter3


AreaDeposits

area have been growing signicantly between Q1-2006 and Q3-2008, reecng thepace of expansion of deposits from euro area residents. Aer Q3-2008, non-euroarea depositors started withdrawing their deposits from euro area countries. Thedrop of extra-euro area deposits from the peak in Q3-2008 to date is 30%. Theline in Figure 26 shows that the non-euro area deposits in the euro area banks is

declining faster than the euro area deposits.

Figure 27 shows that the euro area CIs deposits with longer maturies (of over 2years) have been growing at a faster pace than those of shorter maturies (under2 years). However, the former sll represents only roughly a quarter (EUR 2,572billion) of the laer (EUR 9,885 billion). The short-term nature of maturies of euroarea deposits presents a conundrum to European banks, which need to comply withthe new Basel III liquidity raos requiring liquid assets over a 30-day me horizon

in the Liquidity Coverage Rao requirement and long-term stable funding in theform of the Net Stable Funding Rao sll to be calibrated. Should European banksnot be able to aract more stable deposits and long-term funding, the alternavewill be for banks to disengage themselves further from their tradional maturitytransformaon funcons.

0%

5%

10%

15%

20%

25%

30%

2,500,000

2,700,000

2,900,000

3,100,000

3,300,000

3,500,000

3,700,000

3,900,000

4,100,000

4,300,000

2006-Q1

2006-Q2

2006-Q3

2006-Q4

2007-Q1

2007-Q2

2007-Q3

2007-Q4

2008-Q1

2008-Q2

2008-Q3

2008-Q4

2009-Q1

2009-Q2

2009-Q3

2009-Q4

2010-Q1

2010-Q2

2010-Q3

2010-Q4

2011-Q1

2011-Q2

2011-Q3

2011-Q4

2012-Q1

2012-Q2

2012-Q3

2012-Q4

2013-Q1

Figure 26: Extra-euro area deposits

Deposits, extra-euro area (eur mio) Extra-EA deposits, % of total EA deposits


32/87

32

2. Breakdown by CounterpartyStructural and developmental behaviour of euro area deposits within dierentcounterpares of euro area banks are not idencal. Broadly speaking, non-nancialcorporaons and households enjoy the freedom of parking their cash in banks

and the ability to take it out as soon as they need it. Share of term deposits inthese two counterpart sectors is relavely low, and their deposits are mostly

short-term. Insurance corporaons and pension funds and other nancial

instuons prefer to deposit their cash safely in banks for a longer period of

me. OFIs are also heavy on repos. The sub-secons below go into more detail,using monthly observaons during 2004 - 2013.

2.a. Deposits from Non-Financial Corporaons

Within the euro area, deposits are accepted, both from the inhabitants of thecountry, and from residents of other euro area countries. As far as deposits frombusinessesare concerned, domesc resident corporaons deposit base has beengrowing steadily, and in June 2013 stood at EUR 1,615 billion. By contrast, theamount of deposits from non-domesc euro area corporaons (i.e. cross-borderdeposits from corporates within the euro area) have always represented a smallproporon (8% of total deposits) and have been on a gradual decline. In June 2013this parameter stood at EUR 148 billion.

The dynamics of deposits from businesses has been always posive between 2004and today. Although pre-crisis, this growth was 8-14% year-on-year (y-o-y), post-crisis it dropped to 0-6%.

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

1998-12

1999-05

1999-10

2000-03

2000-08

2001-01

2001-06

2001-11

2002-04

2002-09

2003-02

2003-07

2003-12

2004-05

2004-10

2005-03

2005-08

2006-01

2006-06

2006-11

2007-04

2007-09

2008-02

2008-07

2008-12

2009-05

2009-10

2010-03

2010-08

2011-01

2011-06

2011-11

2012-04

2012-09

2013-02

Figure 27: Breakdown of euro area deposits by

maturity, stocks, EUR million

Deposits overnight, agreed maturity and redeemable at notice, Up to 2 years

Deposits/agreed maturity and redeemable at notice, Over 2 years


33/87

33

Chap

ter3


AreaDeposits

Taking the view of all corporate deposits in the euro area, the following pictureemerges. At present, 65% of all corporate deposits are overnight; that is EUR1,153 billion of deposits which do not stay in banks for longer than overnight.This phenomenon may be explained by the fact that companies accounts might

be considered as operaonal deposits, and while cash on those accounts is fullyaccessible to the account holder at any me, in pracce, these deposits remainmore stable, which is why this stasc could appear misleading.

Another 29% of corporate deposits, or EUR 506 billion, are with agreed maturity,of which two thirds (EUR 333 billion) are maturing within a year. Almost a quarterof deposits with agreed maturity are over 2 years maturity (24%). A small fraconof corporate deposits is redeemable at noce: it comprises 5% of total corporate

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

2013-06

2013-02

2012-10

2012-06

2012-02

2011-10

2011-06

2011-02

2010-10

2010-06

2010-02

2009-10

2009-06

2009-02

2008-10

2008-06

2008-02

2007-10

2007-06

2007-02

2006-10

2006-06

2006-02

2005-10

2005-06

2005-02

2004-10

2004-06

2004-02

Figure 28: NFC deposits: euro area and extra-euro

area, EUR million

Deposit liabilities, Total, Domestic (home or reference area) (rhs)

Deposit liabilities, Total, Other Euro area member states (all countries except the reference area) (lhs)

1% 5%

29%

65%

Figure 29: NFC deposits in euro area:

breakdown by type, June 2013

Repurchase agreements

Deposits redeemable at notice

Deposits with agreed maturity

Overnight deposits


34/87

34

deposits, or EUR 94 billion. An impressive 92% of those are redeemed within 3months. Businesses typically do not deposit a lot of money which they cannotredeem at short noce; and unl 2009 this bank service was in a decline. Since early2010, however, it has been experiencing high growth, and had almost quadrupledto EUR 92 billion by June 2013.

2.b. Deposits from HouseholdsIn June 2013, euro area deposits from households represented EUR 6,209 billion, ofwhich deposits from non-domesc euro area households represented only 1.1%

of this total(and 98.9% domesc). Not only non-domesc euro area householdsdeposits are very small in value, they are also cyclical.

Growth in deposits from households is reliably posive; however the paern is

unstable. Between 2004 and mid-2006 the household deposit growth was around5% (y-o-y); between mid-2006 and mid-2007 growth gradually accelerated to over10% (y-o-y). With the start of the crisis it has dropped and is now observed at a rateof between 2 and 4% (y-o-y).

EUR 2,445 billion, or almost 40% of household deposits, is overnight. Again, this

could be explained by the fact that cizens current and savings accounts areconsidered overnight deposits and not term deposits and can thus be withdrawnat any me. Another 27% (EUR 1,699 billion) are household deposits with agreed

60,000

65,000

70,000

75,000

80,000

85,000

3,000,000

3,500,000

4,000,000

4,500,000

5,000,000

5,500,000

6,000,000

6,500,000

2013-06

2013-02

2012-10

2012-06

2012-02

2011-10

2011-06

2011-02

2010-10

2010-06

2010-02

2009-10

2009-06

2009-02

2008-10

2008-06

2008-02

2007-10

2007-06

2007-02

2006-10

2006-06

2006-02

2005-10

2005-06

2005-02

2004-10

2004-06

2004-02

Figure 30: Household deposits: euro area and

extra-euro area, stocks, EUR mio

Deposit liabilities, Total, Domestic (home or reference area) (lhs)

Deposit liabilities, Other Euro area member states (all countries except the reference area) (rhs)


35/87

35

Chap

ter3


AreaDeposits

maturity.Only 45% of those are with the maturity of over 2 years; the remaining55% or EUR 929 billion are with the maturity of less than 2 years. Within the spanof two years, between Q3-2006 and Q3-2008, deposits with agreed maturity of upto one year have doubled in volume (to EUR 1,209 billion in November 2008), aerwhich this category of deposits with agreed maturity lost its shine and was parally

taken over by the deposits with agreed maturity of between 1 and 2 years, andpartly by the maturies of over 2 years.

Finally, 33% of total household deposits, EUR 2,058 billion, are redeemable atnoce. Of those, almost 96% are redeemable within less than 3 months. UnlOctober 2009, deposits redeemable at noce of more than 3 months, had beengradually increasing. Since then, they are in a steady decline, giving way more andmore to deposits which are redeemed at short noce.

2.b.1. NewdepositsfromHHandNFC(owdata)It is also useful to consider the ow data of new deposits from households andnon-nancial corporaons. Between 2004 and mid-2006 the monthly inowof new deposits from these two counterpares was quite steady. The periodbetween mid-2006 and mid-2008 was marked by a parcularly strong inow ofnew deposits. Since October 2008, it slowed down signicantly. In June 2013,issuance of new deposits (monthly ow data) was EUR 187.5 billion (36% lessthan the volume of new NFC and HH deposits issued in July 2011, and 60% lessthan in June 2008).

Moreover, the structure of new deposits has also been going through a

40%

27%

33%

0%

Figure 31: Deposits from households: breakdown

as of June 2013

Overnight deposits





36/87

36

transformaon. Term deposits, with the maturity of up to 1 year have alwaysbeen dominant in terms of new volumes: in June 2013 they represented 80%of NFC and HH new deposits with agreed maturity. This category of depositshas been in decline: total new deposits issued in the euro area in June 2013,amounted to EUR 150 billion, which is -41% compared with June 2011 and

-66% compared with June 2008.

Volumes of new deposits with a maturity of over 2 years, and those of amaturity between 1 and 2 years, are much less important in the total volumeof new deposits: they represent 8% and 12% respecvely of all new euro areadeposits accepted with agreed maturity. Both categories have been growingsince mid-2006 to date, taking ever more weight in the term deposit structure,although their volality has increased signicantly. Monthly issuance of new

deposits with agreed maturity of between 1 and 2 years has increased by over40% since June 2008; that of deposits with agreed maturity of over 2 years hasmore than doubled.

Repurchase agreements on HH and NFCs new deposits has gone down by over90%.

2.c. Depositsfrom Insurance Corporaons and Pension Funds

The volume of euro area deposit stock from Insurance Corporaons and Pension

Funds (ICPF) represents only 4% of the total euro area of MFIs deposits. However,the nature of their deposits is dierent from those of businesses or households,and therefore important for euro area banks. Unl May 2009, the total stock ofdeposits from the ICPF had been steadily growing at around 4-8% (y-o-y). Followingthe nancial crisis in 2008-2009, insurances and pension funds deposits in banks

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%12%

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000900,000

2013-06

2013-02

2012-10

2012-06

2012-02

2011-10

2011-06

2011-02

2010-10

2010-06

2010-02

2009-10

2009-06

2009-02

2008-10

2008-06

2008-02

2007-10

2007-06

2007-02

2006-10

2006-06

2006-02

2005-10

2005-06

2005-02

2004-10

2004-06

2004-02

Figure 32: Evolution of total deposit stock of

euro area ICPF, EUR mio

ICPF Deposits, total, EUR mio ICPF deposits, % change (y-o-y)
http://localhost/var/www/apps/conversion/tmp/scratch_9/c.Depositshttp://localhost/var/www/apps/conversion/tmp/scratch_9/c.Depositshttp://localhost/var/www/apps/conversion/tmp/scratch_9/c.Deposits


37/87

37

Chap

ter3


AreaDeposits

started gradually declining, at a rate of -2 to -5% per annum. In June 2013, the totalstock of deposits in the euro area totalled EUR 679 billion (a cumulave 10% declinefrom the peak in February 2009).

The largest share of the ICPFs deposits are with agreed maturity, of which 86% or

EUR 478 billion are with agreed maturity of over 2 years. The nature of insurancecorporaons and pension funds business is essenally long-term investment,which explains their longer term nature of business with banks. Some 16% of ICPFsdeposits with banks is overnight; and only 1% is redeemable at noce.

2.d. Depositsfrom Other Financial InstuonsThe amount of deposits from Other Financial Instuons (OFI2) represents 12%of all deposits in the euro area, and grew fast unl the crisis period began. Totalvolume of deposits from OFIs has more than tripled between June 2006 and June2013, reaching EUR 2,123 billion. This said, from May 2012 to date, the volume has

been on a gradual decline.

The structure of other nancial instuons (OFI) deposit stock is similar to thoseof insurance corporaons and pension funds, owing to a similar nature of business.As a result, almost 60% of all OFI deposits are with agreed maturity, over four-hs (EUR 994 billion) of which are with the maturity of over 2 years. The rest

2 According to the ECB denion, OFIs are: Corporaons or quasi-corporaons other thaninsurance corporaons and pension funds such as investment funds that are engaged mainly in

nancial intermediaon by incurring liabilies in forms other than currency, deposits and/or closesubstutes for deposits from instuonal enes other than MFIs, also those enes engagedprimarily in long-term nancing, such as corporaons engaged in nancial leasing, nancial vehiclecorporaons created to be holders of securised assets, nancial holding corporaons, dealers insecuries and derivaves (when dealing for their own account), venture capital corporaons anddevelopment capital companies.

104,123

557,360

8,197 8,904

Figure 33: Composition of deposits from

insurance corporations and pension funds, as

of June 2013

Overnight deposits



http://localhost/var/www/apps/conversion/tmp/scratch_9/c.Depositshttp://localhost/var/www/apps/conversion/tmp/scratch_9/c.Depositshttp://localhost/var/www/apps/conversion/tmp/scratch_9/c.Deposits


38/87

38

of OFIs deposits are more or less equally split between repurchase agreementsand overnightdeposits (over EUR 400 billion each). Deposits redeemable at nocecomprise only 1% (EUR 17 billion) of the total OFI deposited amount, and are mainlythe deposits which are redeemable within 3 months.

-20%

-10%

0%

10%

20%

30%

40%

50%

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

2013-06

2013-02

2012-10

2012-06

2012-02

2011-10

2011-06

2011-02

2010-10

2010-06

2010-02

2009-10

2009-06

2009-02

2008-10

2008-06

2008-02

2007-10

2007-06

2007-02

2006-10

2006-06

2006-02

2005-10

2005-06

2005-02

2004-10

2004-06

2004-02

Figure 34: Euro area deposits from OFI stocks,

EUR million

OFI deposit liabilities, EUR million OFI deposits, % change (y-o-y)

21%

58%

1%

20%

Figure 35: Composition of euro area depositsfrom OFI, as of June 2013

Overnight deposits





39/87

39

Chap

ter3


AreaDeposits

3. Broader PerspecveAn economys level of deposits is linked to the populaons desire to save moneyfor a rainy day. For the euro area economy as a whole, net saving3 to GDP hasexperienced a paradigm shi: from the level of around 7% of GDP between 2000

and mid-2006, it peaked at 8.7% in the second half of 2007, and then fell to 3% byQ1-2010. Since then it levelled at around 4%. In other words, the level of naonalsaving today is roughly two thirds of what it was pre-crisis. Suchnet savingbehaviourto GDP reects its high sensivity (elascity) to economic condions.

Another relevant parameter to consider is the euro area households rao of grosssaving4to gross disposable income5. Aer uctuang between 13 and 14.5%, in2009 this parameter peaked at 15.2%, to then drop to 12.8% in the rst quarter of

this year. This shows that no maer crisis or not, well over 10% of gross disposableincome of the euro area households is devoted to investment and savings.

3 Net saving is dened as: net disposable income, less nal consumpon expenditure. Putdierently, net saving is: gross naonal income, less consumpon of xed capital, plus nettransfers, less nal consumpon expenditure (i.e. cash remaining aer all income has been spenton consumpon and xed capital, and which is therefore available for investment and/or depositmaking).

4 Gross saving is dened as: gross income, less total consumpon plus net transfers. Or as grossdisposable income less nal consumpon expenditure. In other words, gross saving is the cashthat remains, aer consumpon, for investment and deposit making.5 Gross income is gross disposable income plus net transfers.

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

2013-Q

1

2012-Q

3

2012-Q

1

2011-Q

3

2011-Q

1

2010-Q

3

2010-Q

1

2009-Q

3

2009-Q

1

2008-Q

3

2008-Q

1

2007-Q

3

2007-Q

1

2006-Q

3

2006-Q

1

2005-Q

3

2005-Q

1

2004-Q

3

2004-Q

1

2003-Q

3

2003-Q

1

2002-Q

3

2002-Q

1

2001-Q

3

2001-Q

1

2000-Q

3

2000-Q

1

Figure 36: Euro area's net saving to GDP, %

Net Saving to Gross Domestic product at market prices, %


40/87

40

The private sector in the euro area showed resistance to eang into their savings6.Private sector debt has been gradually falling in the euro area, from 170% of GDP in2009 to 167.9% in Q1-2013.It can be concluded that euro area private sector ison a path of gradual deleveraging: not spending everything they earn, and lile

by lile paying o their debts. Of course, changes in the saving rate may have as

much to do with debt repayments as changes in saving paerns.

All this is an important backdrop to the fact that deposit base in the euro area hasbeen inching downwards since the start of the crisis.

Deposit insurancealso plays a role in the possible future transformaon of the euroarea deposit structure. The increase in the coverage level for insured deposits fromEUR 20,000 to EUR 100,000 encouraged individual depositors to connue pung

more money aside. By contrast, those bank clients, who hold over EUR 100,000 in abank, may consider alternaves, such as opening another bank account, or invesngmoney in shares or bonds, buying property, etc. The exact formulaon of an EU-wide Deposit Guarantee Scheme (DGS) Direcve will have an impact on the nalchoice of behaviour of economic agents. The impact will probably have a dierenteect in diverse EU Member States, where dierences in current regimes persist.Recently, depositors have been seen to adjust their deposit holdings in line with theinterim insurance ceiling of EUR 50,000. Increasing awareness of deposit insurance

in Europe is set to dictate consumer and SME behaviour. However, big corporates6 NB: overall euro area picture does not presume that each euro area member country has thesame paern; namely, crisis countries are indeed running down their savings and in some theyeven take out their deposits and spend them.

12.0

12.5

13.0

13.5

14.0

14.5

15.0

15.5

2013-Q1

2012-Q3

2012-Q1

2011-Q3

2011-Q1

2010-Q3

2010-Q1

2009-Q3

2009-Q1

2008-Q3

2008-Q1

2007-Q3

2007-Q1

2006-Q3

2006-Q1

2005-Q3

2005-Q1

2004-Q3

2004-Q1

2003-Q3

2003-Q1

2002-Q3

2002-Q1

2001-Q3

2001-Q1

2000-Q3

2000-Q1

Figure 37: Euro area households' gross saving to gross

disposable income, %

Ratio of euro area households' gross saving to gross disposable income


41/87


42/87

42

- Chapter 4 -Finance for Internaonal Trade

1. Internaonal Trade and the EconomyInternaonal trade is closely allied to economic growth, bringing a wide rangeof benets, such as greater consumer choice, new ideas and technology, greatercompeveness and more jobs. The World Trade Organisaon (WTO) points out inits World Trade Report 20131 that world merchandise and commercial servicestrade reached a peak of US$ 18 trillion and US $4 trillion respecvely in 2011. TheEUs open economy has drawn much of its prosperity from this source. The EU nowrepresents the worlds largest single market, and is the worlds largest exporter, witha 20% share of total exports. It is also the worlds largest importer; and the largestprovider and recipient of foreign direct investment2.

Europes exporng prowess has been a lifeline in the years since the nancial crisiserupted in 2008. In 2012, EU net exports were the sole component of demand tomake a posive contribuon to GDP growth, contribung 1.1%, at a me whenoverall growth fell by-0.3% (Commission Spring 2013 European Economy Forecast)3.Merchandise exports alone account for around a third of EU GDP. The new businessgenerated is a formidable job-creator, not only in the sector concerned, but also inother parts of the economy: the Commission has esmated that, for every 10 jobs

created in industry, between 6 and 20 new jobs are created elsewhere.

1hp://www.wto.org/english/res_e/publicaons_e/wtr13_e.htm 2 hp://trade.ec.europa.eu/doclib/docs/2013/april/tradoc_151052.pdf 3hp://ec.europa.eu/economy_nance/publicaons/european_economy/2013/pdf/ee2_en.pdf

EU

United States

China

Japan

South Korea

B ons

Imports

Exports

Figure 38: Trade in goods and comercial services 2010,

European Commision
http://www.wto.org/english/res_e/publications_e/wtr13_e.htmhttp://trade.ec.europa.eu/doclib/docs/2013/april/tradoc_151052.pdfhttp://ec.europa.eu/economy_finance/publications/european_economy/2013/pdf/ee2_en.pdfhttp://ec.europa.eu/economy_finance/publications/european_economy/2013/pdf/ee2_en.pdfhttp://trade.ec.europa.eu/doclib/docs/2013/april/tradoc_151052.pdfhttp://www.wto.org/english/res_e/publications_e/wtr13_e.htm


43/87

43

Chapter

4

Finance

for

InternaonalTra

de

Against this background, it is not surprising that the promoon of exports is acentral part of the EUs current eorts to restore economic growth and increaseemployment. In fact, for decades, governments around the world have supportedtheir exporters, as a means of smulang growth at home while supplying goods

and services to customers abroad. It is esmated that some 80% to 90% of tradetransacons are backed by a nancing instrument. Much of this nance is short term(normally up to one year), and self-liquidang, with the credit repaid on delivery ofthe goods. This type of nancing is oen obtained through inter-company loansor tailored nancial products such as leers of credit. Within the nancing world,these shorter term, lower value internaonal sales are termed trade nance. Onthe other hand, sales of high value, which require credit of two years to beyond tenyears, is termed export nance. The length of these loans normally reects the

me required for the goods to be installed and/or generate a return. These exportnance or export credit transacons are complex, and engage large companiesas well as Small and Medium-sized Enterprises (SMEs). Because of the long-termcharacter of export credit, renancing such credit is a key task of banks.

It is in the area of medium and long-term export nance, that government supporthas been most needed, precisely because many of these sales are to purchasersoutside the home region, oen in developing countries, and require large loans forlengthy periods. Government support has generally taken the form of cover for the

risks aached to the export loan.

2. Structures of support for the Financing of ExportsTo ensure that exporters obtain the necessary nance to compete on internaonalexport markets, many governments provide guarantees and insurance to cover thepolical and economic risks faced by nancial intermediaries. These services arechannelled through their Export Credit Agencies (ECAs). ECAs acvies in medium-

and long-term export credit usually support capital goods producers, for examplefor renewable energy and infrastructure projects. They also support SMEs, whichare oen suppliers and sub-contractors to the bigger companies. From a bankingperspecve, export credit insurance frees up capital in banks, and thus lowers costs.

The many ECAs around the world exist largely to support their own exporters, whoare conducng business in the highly compeve world markets. Since the 1970s,an internaonal set of rules established by the OECD has provided a framework for

the acvies of OECD members ECAs. This is intended to ensure that the terms andcondions of the government support are comparable and market-based, and thatcompeon among exporters is based on the features of the goods being sold, rather


44/87

44

than the associated nancial terms. The OECD Arrangement on export credits xeslevels, terms and condions of public support4. Its general condions cover dierentaspects of the export credit contract, such as down-payments, level of ocial coverof risks, repayment periods and interest rates; as well as the premium charged bythe ECA for its cover. Separate agreements provide rules for handling other aspects

of export credits, such as their environmental and social eects. (Comprehensiveinformaon on export credit in the EU, and the internaonal regimes governing theacvity, can be found on the websites of the European Commission and the OECD5.)

Importantly, the OECD Arrangement contains provisions to ensure the avoidance ofsubsidies, thereby meeng the objecves of the WTO Agreement on Subsidies andCountervailing Measures. These provisions require, interalia, that premium ratesshall be risk-based, and shall not be inadequate to cover long-term operang costs

and losses

6

.

A major benet of the ECA insurance backing for export credits is that public insurerscan more readily accept high risk and large volumes. This provides borrowers witha reasonably stable source of funding, parcularly important at mes of marketturbulence, as seen recently. The public commitment underlying ECA-coveredexport credits is oen the only way to conduct business in certain countries, whererisks and uncertainty make it impossible for private sector companies.

A recent study by the ICC Banking Commission, the 2013 Global Risks Trade FinanceReport, has provided a pool of performance data on both short-term trade nanceand (for the rst me) medium- and long-term export nance. This iniave aimsto evaluate the long-held claim that trade and export nance is a relavely lowrisk form of nancing, and is of considerable potenal interest to bankers andregulators. While the collecon exercise for export nance will need to be furtherdeveloped over me, on the basis of this years data the ICC reported as followson the overall expected loss (EL): as with the short-term results, the observed EL

gures appear to be lower than the EL one would expect for vanilla corporatelending, reecng the benets of the ECA guarantees/insurance.7

The support provided to internaonal trade through insurance and associatednance is very signicant in scale and in its inuence on global trade ows. Figuresfrom the Berne Union Internaonal Union of Credit & Investment Insurers show

4 hp://www.oecd.org/document/42/0,3746,en_2649_37431_40898090_1_1_1_37431,00.html.5hp://ec.europa.eu/trade/creang-opportunies/trade-topics/export-credits/index_en.htm; hp://www.

oecd.org/tad/xcred/.6 hp://www.wto.org/english/tratop_e/scm_e/scm_e.htm

7 hp://www.iccwbo.org/products-and-services/trade-facilitaon/icc-trade-register/


45/87

45

Chapter

4

Finance

for

InternaonalTra

de

that the exposure of its members (including ECAs) to medium and long term exportcredit insurance reached an all-me high of USD 1.7 trillion8at the end of 2012.Taking account of short as well as longer term insurance, Berne Union memberscollecvely insured more than 10% of internaonal trade in 2012.

3. Troubled TimesThis long-standing framework of support for larger, longer term nancing hasbecome more important since the crisis. Unfortunately, in its wake, condions forEuropean banks acve in the market became more dicult.

A number of trends were responsible:

polical and economic risk increased, making buyers and sellers morecauous;

long term funding costs for European banks rose;

for a period, euro area dicules led US-based nancial instuons toreduce dollar lines to euro area banks, making dollar funding dicult;

new banking regulaon, in parcular the new capital requirements iniated

by the Basel Commiee, required many banks to improve balance sheetraos;

8 hp://www.berneunion.org/stascs/

2008 2009 2010 2011 2012

INV - Investment Insurance 145,580 145,785 193,368 200,355 219,348

MLT - Medium Long Term Export Credit

Insurance 523,704 582,792 593,089 646,373 684,463

ST - Short Term Export Credit Insurance 907,619 768,525 838,573 884,662 1,032,223

-

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

2,000,000

US

DMillions

Figure 39 Exposure


46/87

46

banks took steps to deleverage, reducing their asset volumes in relaon tocapital, which had the eect of reducing their ab

european banking sector - facts and figures

Documents