Download integrated supervisor

Evolution of the Supervisory
Function within the CNB
Seminar marking
the 20th anniversary of
the Czech and Slovak
Central Banks
David Rozumek
Executive Director
Financial Market Supervision
October 2nd, 2013
I.
The Czech Financial Sector
Czech Financial Sector
• The Czech financial
sector is dominated
by banks
0,6%
78,5%
7,7%
4,4%
3,2%
5,5%
Banks
Credit unions
Insurance Companies
Pension funds
Investment companies, investment and mutual funds
Leasing companies and other lending institutions
Capital Adequacy of Czech Banks
• As of July 2013, capital adequacy was 17.6% (Tier 1 ratio 17.3%)
Capital adequacy and leverage ratio
(%)
Capital and capital requirements for the banking risks
(CZK billions)
20
400
350
16
300
12
250
.
200
8
150
4
100
50
0
1/09
7/09 1/10
7/10 1/11 7/11
Capital adequacy
1/12
7/12
1/13
7/13
0
06/08
06/09
06/10
06/11
06/12
Capital adequacy Tier 1
Operational and other risks
Market risks
Leverage ratio
Credit risk
Regulatory capital
Source: CNB
Source: CNB
06/13
Profitability of the Banking Sector
• The Czech banking sector remains profitable during crisis despite
the adverse economic conditions which feeds into capitalization
Capital and capital adequacy in the Czech banking sector
(CZK billions; %)
Net profit in the Czech banking sector
(CZK billions)
100
400
18
90
350
16
80
300
70
14
12
250
60
10
200
50
8
150
40
30
100
20
50
10
0
06/07
0
07/07
07/08
07/09
07/10
Net profit (3M annualised)
07/11
07/12
6
4
2
06/08
06/09
06/10
06/11
06/12
Regulatory capital
07/13
Capital adequacy (%, right-hand scale)
Net profit (1M annualised)
Capital adequacy Tier I (%, right-hand scale)
Source: CNB
Source: CNB
0
06/13
Profitability of the Banking Sector
• RoE and RoA still rather high in international comparison
Return on Assets (in %)
Return on Equity (in %)
20
15
10
5
0
-5
-10
-15
-20
-25
1,5
1,0
0,5
0,0
-0,5
2011
-1,0
CZ
AT
Source: IMF FSI
2011
2012
DE
PT
SI
SK
HU
PL
EA
CZ
AT
Source: IMF FSI
DE
2012
PT
SI
SK
HU
PL
EA
Czech Banks‘ Funding
• Funding structure is sound
• Key ratios have not change much over years …
Liquidity ratios in the banking sector
(%)
70
220
60
200
50
180
Deposit-to-loan ratio in selected economies (in %)
140
120
100
40
160
30
80
60
140
20
120
10
40
20
0
0
100
7/07
7/08
7/09
7/10
7/11
7/12
Quick liquid assets / total assets
Liabilities on demand / total liabilities incl. credit institutions
Quick liquid assets / clients' deposits
Deposits / Loans (clients) (right-hand axis)
Source: CNB
CZ
7/13
Source: ECB
SK
DE
PL
EA
AT
HU
PT
SI
Credit Risk Indicators
• Non-performing loans (NPL) going up in the corporate segment while
stable in the housing sector ...
Non-performing loans to households
Non-performing loans
14.0%
10.0%
9.0%
7,6 %
12.0%
8.0%
12,2 %
7.0%
6,0 %
6.0%
10.0%
8.0%
5.0%
5,1 %
4.0%
3.0%
5,1 %
6.0%
4.0%
2.0%
3,4 %
2.0%
1.0%
0.0%
1/07 7/07 1/08 7/08 1/09 7/09 1/10 7/10 1/11 7/11 1/12 7/12 1/13 7/13
0.0%
1/07 7/07 1/08 7/08 1/09 7/09 1/10 7/10 1/11 7/11 1/12 7/12 1/13 7/13
Total loans
Households
Non-financial corporations
Housing loans
Households
Consumer loans
Credit Risk Indicators
• NPL coverage has stabilized, but structure of NPL got worse ...
Provisions and coverage of NPLs by provisions
(%)
5,0
100
4,5
90
4,0
80
3,5
70
3,0
60
2,5
50
2,0
40
1,5
30
1,0
20
0,5
10
0
0,0
07/05 07/06 07/07 07/08 07/09 07/10 07/11 07/12 07/13
Loan loss provisions rate
NPL coverage ratio (right-hand scale)
Source: CNB
Structure of NPLs
(%)
05/04
06/04
Substandard
Doubtful
07/04
2009
37.4
21.1
08/04
2010
39.2
13.4
09/04
10/04
2011
32.6
14.0
11/04
2012
27.1
14.3
12/04
Up to 3M past
01/05
Not past
due
due
02/05
03/05
2009
52.4
9.2
04/05
2010
51.6
9.9
05/05
2011
46.1
9.4
06/05
07/05
2012
43.7
9.5
08/05
Source: CNB, CNB
calculation
Loss
NPLs, total
41.4
100.0
47.4
100.0
53.5
100.0
58.6
100.0
More than 3M
NPLs, total
past due
38.4
38.5
44.5
46.8
100.0
100.0
100.0
100.0
Developments in Credit
• Recent data confirm just a slow loan growth
Year-on-year growth rates of a bank loans in the Czech Republic
(in %)
Year-on-year credit growth to households
(in %)
40
40
35
35
30
30
25
25
20
20
3,7%
15
15
3,6%
10
4,9%
10
3,7%
5
5
0
0
-5
-10
01/10
-0,8%
07/10
01/11
07/11
01/12
07/12
01/13
07/13
-5
01/10
07/10
01/11
07/11
01/12
07/12
01/13
-0,6%
07/13
Households
Total loans
Source: CNB
Non-financial corporations
Households
Consumer loans
Housing loans
Consumer loans (after adjustment for one-off transfer)
Source: CNB
Stress Tests 2013: Results
• The stress tests and other analyses demonstrate that the Czech
financial sector is well prepared for potential stresses.
• Banks have a large capital buffer which enables them
• to absorb adverse shocks and
• maintain the sector’s overall capital adequacy sufficiently above the
regulatory threshold of 8% even in a very unfavorable scenario.
• To maintain high public and investor confidence in the stability of
the Czech banking sector in the current adverse economic
environment, banks must maintain a high capacity to absorb
potential credit and market losses.
• No acute risks to financial stability requiring immediate action
are identified.
II.
Supervision of
the Czech Financial Sector
Integration of Supervision
•
Supervisory institutions – till 1.4.2006
• CNB – banks
• Office of State Inspection in the Insurance and Pension (Ministry of Finance) –
Insurance companies and Pension funds
• Office for Supervision of Credit Unions – credit unions
• Czech Securities Commission – investment funds, mutual funds, stock exchange,
brokers and intermediaries, etc.
•
Supervisory institution – integrated supervisor – since April 2006 till now
• CNB is the only one supervisor
• banks, foreign bank branches, credit unions
• insurance companies, foreign insurance company branches, reinsurance company,
pension funds depositories
• securities companies, investment funds, investment companies, mutual funds, brokers and
intermediaries
• payment institutions
Functional Model of Supervision
• Functional model – since January 2008
• Financial Market Regulation and Analyses Department
• Licensing and Enforcement Department
• Financial Market Supervision Department
Financial Market Supervision
Department
Credit Institutions
Supervision Division
Insurance Sector
Supervision Division
Capital Market
Supervision Division
Risk Management
Control Division
Proceedings Rules
and
Professional Care
Control Division
Cross-sector Functional Model
• Since March 2011
• Financial Market Supervision Dpt.
Off-site
On-site
Prudential supervision
Prudential
Supervision
Division
Prudential
Inspection
Division
Conduct of business
supervision
Conduct of
Business
Supervision
Division
Conduct of
Business
Inspection
Division
CNB – Integrated Supervisor
•
•
•
•
•
•
•
•
•
Easy day-to-day communication + information-sharing synergies
Easier communication with supervised entities, foreign supervisors
Stronger position in the crisis situation
Enables to monitor the whole financial market (financial stability
perspective)
Ability to analyze the impact of development in one sector to other
sectors or the whole economy
Strong technical and professional support
Unification of reporting formats for different sectors where suitable
Unification of supervisory techniques for different sectors where suitable
Faster development of supervisory methods, internal procedures etc.
Integrated Supervisor in
Independent Central Bank
• Easy sharing information from money market, payment system
(existence of Chinese walls) – crucial for banking supervision
• Combination of financial stability and supervisory point of views –
common working groups (stress testing exercises for banks and
insurance companies)
• Independent and apolitical decision-making process
• Allows to focus on systemic risk
• Adequate financial sources enable hiring experienced staff and
using necessary technical support
Cooperation
• Colleges
• Technical assistance to third countries (Egypt, etc.)
• Active participation in EBA
• Board of Supervisors
• Management Board
• CNB representative member of the first EBA mediation panel
• SCRePol
• Standing Committee on Regulation and Policy
• Mediation Panel
• CNB representative member of the first EBA mediation panel
Challenges posed by Banking Union
• Regulatory area
• EBA regulatory role even more important (draft BTS)
• No major challenge (formal double simple majority voting in EBA, but established practice of
reaching decisions on consensual basis and level of harmonization reached so far makes
decision-making easier)
• Supervisory area
• Might face some challenges concerning Q&A and SSH (Single Supervisory
Handbook) in relation to individual supervisors and SSM
• Concerns implementation practice and colleges
• Up to now weights of individual authorities were balanced
• Newly one supervisor (ECB) will be much stronger and bigger than any other
• Risk of a wrong set-up with regard to the SSM
•
•
•
•
Two-speed Europe
Tensions between two blocks (participating and non-participating MSs)
For one block it will be easier to over-rule the other block
Instead of single market we will end up with more fragmented markets within
the EU
Lessons To Be Learned
• Importance of having
• Conservative financial sector
• Dominated by banks which are
• well capitalized and
• have sound funding structure
• Integrated supervision
• Alignment of supervisory techniques, methods and
procedures across sectors
• Information sharing, communication and reporting
advantages
• Supervisory and financial stability synergies
Thank you for your attention
www.cnb.cz
David Rozumek
Executive Director
Financial Market Supervision
Department
[email protected]
The CNB disclaims responsibility for any private publication or personal statements of any CNB employee.
The views in this presentation are the views of their authors and do not necessarily reflect those of the CNB.