New rules which, on the one hand, guarantee stability and risk reduction for European banks, but which, on the other hand, favor a return "to healthy lending by institutions to the real economy". Thus, in a press conference at the ABI headquarters in Milan, the president of the association of Italian banks Antonio Patuelli and MEP Roberto Gualtieri (Pd), president of the Commission for economic and monetary problems in Strasbourg, summarized the "banking package" approved a few days ago by Ecofin and which must now be voted on by the European Parliament, which will do so by February-March. "It is a regulation that is not perfect but more balanced and satisfactory, which goes in the right direction", commented Patuelli and Gualtieri, also recalling that on the issue of NPLs, one of the most heartfelt, Strasbourg has softened the management requirements of the new Non Performing Loans, even if "now the ball passes to the EU governments".
It will be the Italian banks that will benefit from the new and more flexible rules on the management of the new NPLs. In fact, non-performing loans they represent 10% of our total credits, a figure that does not compare well with the European 3,6%. But the new approach, according to what has emerged, will provide for an extension of the time for the devaluation of non-performing loans that can be generated by new loans. “On NPLs – Patuelli specified – I still want to say that this package of measures has been agreed it comes after a strong reduction in non-performing loans already carried out. The reduction below 40 billion of net non-performing loans, which are the ones that count, is a result that has already been achieved”.
In addition to that of NPLs, the other two hot topics of this period are the spread and liquidity of banks, in view of the end of Quantitative Easing. “The spread which now stands at around 300 basis points – said Patuelli – weighs on the production chain, the European regulation agreed by Ecofin is in a certain sense a compensation, it seeks to counter the complicating factors in lending to businesses and families". In fact, the document provides for the facilitation of greater support especially for SMEs, through the so-called SMEs Supporting Factor, i.e. the expansion of the value of exposures from 1,5 to 2,5 million for loans granted by banks to small and medium enterprises for the purpose of applying a lower capital absorption.
The rising spread is a risk factor for banks, especially the Italian ones, which are highly exposed to sovereign debt. “As long as I'm here – explained Gualtieri, whose mandate expires in May like that of the entire European Parliament – there won't be any new regulations limiting exposure to sovereign debt. Banks will always be affected by the situation of a country, but the challenge is to reduce public debt and give signals of reliability to the markets, not limit the action of the banks”. Also because the theme is necessarily linked to that of liquidity.
When asked about the possible need for a new TLTRO, Patuelli replied: “We are entering a new phase, after the strong injection of liquidity by the ECB. In this new phase I expect Italian banks to be attentive and ready to repay the loans: somehow they will have already parked the necessary money, and it is no coincidence that public debt stocks have increased in recent months, with maturities close to repayment ones. It is a way to park liquidity, not being able to do it in Frankfurt deposits which have negative interest, -0,40%”.
Here are, in summary, the points of the reform that will become law at the beginning of 2019:
- SMEs Supporting Factor: the increase in the value of exposures from 1,5 to 2,5 million for loans granted by banks to small and medium-sized enterprises for the purpose of applying a lower capital absorption (so-called SMEs Supporting Factor). This less penalizing treatment was introduced in the CRR in 2013 on a transitory basis, therefore for a limited period, and only for exposures up to 1,5 million. It seemed absolutely necessary to ensure that this support treatment acquired a permanent nature and was also expanded, given the current economic phase of recovery and the specific characteristic of the economy of many member states, especially Italy, centered on the small and very small industry;
- Infrastructure Supporting Factors: the permanent introduction of lower capital absorption for financing destined for the construction of infrastructures, which are one of the most crucial sectors for the economic competition of the various Member States;
- Loans secured by the assignment of a portion of salary/pension: a better calibration of the capital absorption for loans guaranteed by the transfer of a portion of the salary/pension, which are characterized by being a low-risk form of financing;
- Software: the inclusion of the value of the investments in software made by the banks in the calculation of the respective regulatory capital, which makes it possible not to penalize, as otherwise it would have been the case, the enormous technological transformation to compete on the market through widely renewed and diversified business models;
- NSFR: the elimination of the penalty for the purposes of calculating the long-term liquidity ratio (Net Stable Funding Ratio - NSFR) for repurchase agreement transactions involving highly liquid securities (such as government bonds), penalty envisaged from the original Commission proposal. The original proposal, in fact, would have penalized the exchange of government bonds against liquidity and vice versa (the so-called "Repo" and "Reverse Repo"), going to hit precisely those transactions which today, on the contrary, guarantee the liquidity of the market ;
- Proportionality: The introduction of a series of corrective measures to ensure that the new legislation is more marked by proportionality criteria with regard to smaller and more operationally complex banks. To this end, a definition of small and less complex institutions has been introduced (those with total assets of less than 5 billion euros) in respect of which the EBA will have to decide on an overall reduction in reporting measures which will lead to a reduction in costs between 10 and 20%, as well as a simplified regime for long-term liquidity management (NSFR).
- Danish compromise: the further extension, until 2024, of the possibility for non-conglomerate financial institutions not to deduct shareholdings in insurance companies from regulatory capital, according to the so-called "Danish compromise". This allows affected institutions to further defer a regulatory burden that results in a major impact on regulatory capital.
The ABI was also keen to say that its activity was obviously aimed also at oppose regulatory proposals that would have been particularly penalizing for banks. Here are the examples cited:
- the changes to the capital absorption regime for government bond portfolios: the attempt was successfully countered in line with the conclusions of the Basel Committee which considered that there were no conditions to review said treatment or bring it forward in some jurisdictions compared to others. During the legislature, similar attempts, albeit in other forms, were also advanced in other drafts of legislation (for example, in the one on covered bonds);
- the possible introduction of a penalty factor, in terms of capital absorption, for loans made by banks for investments and/or economic activities considered not environmentally sustainable (the so-called "Brown finance" as opposed to the so-called "Green Finance");
- the introduction of more stringent capital absorption requirements linked to factors, including through second pillar measures.
With reference instead to the part of the banking package related to the revision of the BRRD and aspects related to the legislation on resolution, the Abi's proposals aimed at:
- introduce a requirement of greater proportionality which takes into account the more simplified business model for the definition of the requirement of own funds and liabilities eligible for bail-in purposes (Minimum requirement of own funds and eligible liabilities - MREL);
- introduce a grandfathering clause which makes it possible to make all liabilities/securities already on the market eligible for the purposes of the MREL requirement before the entry into force of the new legislation;
- defer the entry into force of the new legislation to 2024 (with an intermediate verification phase, however, to 2022).
