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#EBA - Supervisor says the EU banking sector entered the crisis with solid capital positions and improved asset quality

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The European Banking Authority (EBA) published today (9 June) 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.

CET1 ratio

NPL ratio

Leverage ratio

(transitional)

(fully loaded)

(fully phased-in)

25th pct

13.9%

13.4%

1.2%

4.9%

Weighted average

15.1%

14.8%

2.7%

5.5%

75th pct

18.5%

18.4%

4.3%

8.4%

Commenting on the publication of the results, EBA Chairman Jose Manuel Campa (pictured) said: “The EBA considers that the provision to market participants of continuous information on banks’ exposures and asset quality is crucial, particularly in moments of increased uncertainty. The dissemination of banks’ data complements our ongoing monitoring of the risks and vulnerabilities in the banking sector and contributes to preserving financial stability in the Single Market.”

In the context of an unprecedented health crisis, EU-wide Transparency data confirms banks entered this challenging period in a stronger position than in previous crises in line with the EBA’s 'Thematic note on the first insights into the Covid-19 impacts'. Compared with the Global Financial Crisis in 2008-2009, banks now hold larger capital and liquidity buffers.

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 harmonized 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%.

  • The EBA postponed the EU-wide stress test exercise to 2021 to allow banks to focus on and ensure continuity of their core operations, including support for their customers.
  • The EBA has been conducting transparency exercises at EU-wide level on an annual basis since 2011. The transparency exercise is part of the EBA’s ongoing efforts to foster transparency and market discipline in the EU financial market, and complements banks’ own Pillar 3 disclosures, as laid down in the EU’s capital requirements directive (CRD). Unlike stress tests, transparency exercises are purely disclosure exercises where only bank-by-bank data are published and no shocks are applied to the actual data.
  • The spring 2020 transparency exercise covers 127 banks from 27 EEA countries, and data is disclosed at the highest level of consolidation as of September 2019 and December 2019. The transparency exercise fully relies on supervisory reporting data.
  • Along with the dataset, the EBA also provides a document highlighting the key statistics derived from the dataset, and a wide range of interactive tools that allow users to compare and visualise data by using maps at a country and a bank-by-bank level.

 

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Commission approves German scheme to compensate accommodation providers in the field of child and youth education for damages suffered due to the coronavirus outbreak

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The European Commission approved, under EU state aid rules, a German scheme to compensate accommodation providers for child and youth education for the loss of revenue caused by the coronavirus outbreak. The public support will take the form of direct grants. The scheme will compensate up to 60% of the loss of revenues incurred by eligible beneficiaries in the period between the beginning of the lockdown (which started on different dates across the regional states) and 31 July 2020 when their accommodation facilities had to be closed due to the restrictive measures implemented in Germany.

When calculating the loss of revenue, any reductions in costs resulting from income generated during the lockdown and any possible financial aid granted or actually paid out by the state (and in particular granted under scheme SA.58464) or third parties to cope with the consequences of the coronavirus outbreak will be deducted. At the central government level, facilities eligible to apply will have at their disposal a budget of up to €75 million.

However, these funds are not earmarked exclusively for this scheme. In addition, regional authorities (at Länder or local level) may also make use of this scheme from the local budgets. In any event, the scheme ensures that the same eligible costs cannot be compensated twice by different administrative levels. The Commission assessed the measure under Article 107(2)(b) of the Treaty on the Functioning of the European Union, which enables the Commission to approve state aid measures granted by member states to compensate specific companies or specific sectors for the damages caused by exceptional occurrences, such as the coronavirus outbreak.

The Commission found that the German scheme will compensate damages that are directly linked to the coronavirus outbreak. It also found that the measure is proportionate, as the envisaged compensation does not exceed what is necessary to make good the damages. The Commission therefore concluded that the scheme is in line with EU state aid rules.

More information on actions taken by the Commission to address the economic impact of the coronavirus pandemic can be found here. The non-confidential version of the decision will be made available under the case number SA.59228 in the state aid register on the Commission's competition website.

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Commission approves Austrian measures to support rail freight and passenger operators affected by the coronavirus outbreak

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The European Commission has approved, under EU state aid rules, two Austrian measures supporting the rail freight sector and one measure supporting the rail passenger sector in the context of the coronavirus outbreak. The two measures supporting the rail freight sector will ensure increased public support to further encourage the shift of freight traffic from road to rail, and the third measure introduces temporary relief for rail operators providing passenger services on a commercial basis.

The Commission found that the measures are beneficial for the environment and for mobility as they support rail transport, which is less polluting than road transport, while also decreasing road congestion. The Commission also found that the measures are proportionate and necessary to achieve the objective pursued, namely to support the modal shift from road to rail whilst not leading to undue competition distortions. Finally, the waiver of infrastructure access charges provided for in the second and third measures described above is in line with the recently adopted Regulation (EU) 2020/1429.

This Regulation allows and encourages member states to temporarily authorize the reduction, waiver or deferral of charges for accessing rail infrastructure below direct costs. As a result, the Commission concluded that the measures comply with EU state aid rules, in particular the 2008 Commission Guidelines on state aid for railway undertakings (the Railway Guidelines).

Executive Vice President Margrethe Vestager, in charge of competition policy, said: “The measures approved today will enable the Austrian authorities to support not only rail freight transport operators, but also commercial passenger operators in the context of the coronavirus outbreak. This will contribute to maintaining their competitiveness compared to other modes of transport, in line with the EU Green Deal objective. We continue working with all member states to ensure that national support measures can be put in place as quickly and effectively as possible, in line with EU rules.”

The full press release is available online

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Commission approves €5.5 million Estonian scheme to support companies active in tourism sector affected by coronavirus outbreak

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The European Commission has approved a €5.5 million Estonian scheme to support companies active in the tourism sector affected by the coronavirus outbreak. The measure was approved under the State aid Temporary Framework. The public support will take the form of direct grants and will be open to accommodation providers, travel agencies, tourism attraction operators, tourism service providers, international coach service providers, conference organizers and tourist guides.

The purpose of the measure is to mitigate the sudden liquidity shortages that these companies are facing because of the restrictive measures imposed by the government to limit the spread of the virus. The Commission found that the Estonian measure is in line with the conditions set out in the Temporary Framework. In particular, the support (i) will not exceed €800,000 per company; and (ii) will be granted no later than 30 June 2021.

The Commission concluded that the measure is necessary, appropriate and proportionate to remedy a serious disturbance in the economy of a member state, in line with Article 107(3)(b) TFEU and the conditions of the Temporary Framework. On this basis, the Commission approved the measure under EU state aid rules. More information on the Temporary Framework and other actions taken by the Commission to address the economic impact of the coronavirus pandemic can be found here.

The non-confidential version of the decision will be made available under the case number SA.59338 in the state aid register on the Commission's competition website once any confidentiality issues have been resolved. 

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