EBA: EU banks funding plans indicate increased appetite for client deposits and market-based funding in the coming years

24 September 2018

On 19 September 2018, the European Banking Authority (EBA) published two reports on EU banks’ funding plans and asset encumbrance respectively.

The reports aim to provide important information for EU supervisors to assess the sustainability of banks’ main sources of funding.

The results of the assessment show that banks plan to match the asset side increase in the forecast years by a growth in client deposits as well as market based funding.

  • 159 banks submitted their plans for funding over a forecast period of 3 years (2018 to 2020). According to the plans, total assets are projected to grow, on average, by 6.2% by 2020. The main drivers for asset growth are loans to households and to non-financial corporates.
  • Over the forecast period, banks expect to increase client deposits and long-term debt funding while short-term debt and repo funding are expected to fall. The projected data shows a concentration of debt securities issuances in 2019 and 2020. Most likely, these issuances are driven by the conjunction of the maturities of central bank funding and the nearing timeline for G-SIBs to comply with the total loss absorption capacity requirements (TLAC) and the progress in the implementation of the minimum requirements for eligible liabilities (MREL).
Data also shows that the spread between interest rates for client deposits and for loans to clients declined in 2017 and most banks expect the spread to decline even further in 2018. On the cost of funding, banks seem optimistic as they assume their costs of long-term market-based funding in 2018 will remain at 2017 levels. Amid higher competition and a fading support by central banks, the evolution of banks’ interest spread and market-based funding costs should be closely monitored, in particular for those banks that are under pressure to increase profitability or without access to market-based funding at reasonable rates.

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