18 October 2012

Deloitte: Tougher capital rules are key driver of European bank deleveraging

Deloitte UK undertook primary research alongside DTTL member firms across Europe, surveying 18 European financial institutions, representing €11 trillion of assets, about their experience and expectations of deleveraging. The survey was reinforced by one-on-one interviews.

A banking report from Deloitte, the business advisory firm, highlights the key drivers of deleveraging among European banks. The Survey’s findings make challenging reading. Among the key findings are the following:

• Deleveraging is a regulatory imperative – bankers said that boosting regulatory capital is the key driver.
• European banks are allowing loans to run off as their key means of deleveraging.
• Because banks are deleveraging through run-off more than through divestments, deleveraging will be slow.
• The scale of bank deleveraging is modest relative to past crises and the preceding credit boom.
• Deleveraging is reversing the Single Market in financial services, with plans centred on Western Europe.
• Private equity, investment firms and non-European banks are expected to be the main buyers of bank assets. Price agreement represents the main barrier to sales.
• Commercial real estate loans are next on the block, and are also expected to be trickiest to sell.

Vivian Pereira, banking and capital markets partner at Deloitte, said:

“The banking crisis has forced European banks to carry out a fundamental review of their business models and to restructure and resize their balance sheets. The Deloitte Bank Survey shows that the most important driver for bank deleveraging is the regulatory requirement for higher capital ratios. This has been the main focus of the Basel Committee on Banking Supervision and European Banking Authority, which are pursuing a policy of reducing global systemic risk.

“There are other factors behind bank deleveraging. Funding and liquidity concerns, European Union state aid rules and sovereign bail-out programmes and changes in business strategy induced by the plethora of reforms faced by the banking sector are also important drivers.  Banks in countries under the IMF/EU/ECB programmes also have additional pressures to deleverage.”

Information

Full survey

© Deloitte LLP