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Comprehensive Assessment: Non-Performing Exposures Preventing €2 Trillion Of Additional Bank Lending, Impacting Eurozone Jobs And Growth, Says KPMG
  • KPMG analysis of European Central Bank’s Asset Quality Review’s results reveal the true impact supporting non-performing exposures (NPEs) is having on shareholder value
  • A staggering €96bn of Common Equity Tier 1 capital is tied-up supporting NPEs
  • Bank management teams must focus on proactively managing NPEs and prepare for portfolio sales, as well as reviewing the profitability of their performing exposures

European banks have almost €100bn of capital tied-up to support non-performing exposures (NPEs), which is impacting both their financial performance and contribution to the wider economy, according to new KPMG analysis.

Comprehensive Assessment: Non-Performing Exposures Preventing €2 Trillion Of Additional Bank Lending, Impacting Eurozone Jobs And Growth, Says KPMG

Comprehensive Assessment: Non-Performing Exposures Preventing €2 Trillion Of Additional Bank Lending, Impacting Eurozone Jobs And Growth, Says KPMG

The professional services firm, which performed Asset Quality Review (AQR) projects for regulators and banks in almost every Eurozone country, analysed the recently announced Comprehensive Assessment results across the 130 in-scope banks.

This revealed that NPEs, or any obligations that are over 90 days overdue, impaired or in default, which are typically more expensive to manage than performing exposures and yet generate lower returns for the bank, totalled over €1.2 trillion at 31 December 2013.

For Eurozone banks, the Common Equity Tier 1 (CET1) capital required to support these exposures is estimated to be €96bn, representing approximately 10 percent of total capital for the sector. If this capital was freed up, it could support approximately €2 trillion of additional bank lending across Europe and increase their return on equity by 150 basis points.

Stephen Smith, co-head of KPMG’s AQR taskforce, said, “While the AQR focused on the quality of the balance sheet, the income statement remains a cause for major concern, as our analysis suggests that the cost of supporting non-performing exposures is contributing to the destruction of shareholder value.

“We have seen banks in the UK, Spain, Ireland and Germany all take meaningful steps to deleverage and exit both performing and non-performing segments of their balance sheet at record pace in 2014.  This has had the effect of front running the impact of the AQR internally and in the market.  We have seen an excess of €62bn (by face value) of loan sale transactions closed across Europe this year, however only c €7bn of these sales have taken place outside of these four markets.”

Geographically, Cypriot, Greek and Irish banks were most impacted, with an average of 46% 35% and 21% respectively, of capital tied-up in supporting NPEs. In contrast, Germany and France banks fared well with 7% and 5% respectively, due to lower NPE stocks.

Francisco Uria Fernandez, co-head of KPMG’s AQR taskforce, added, “These results are significant as this is truly the first time that it has been possible to compare NPEs across European banks.

“The Comprehensive Assessment has helped strengthen the European banking sector, considering the capital levels after both the AQR and the Stress Test. Banks are now in a better position to have a positive contribution to economic growth and job creation. However this is being prevented by the significant NPEs overshadowing the sector.

“From an economic perspective, the significant proportion of capital that is being locked-up supporting non-performing exposures is having an impact as this is reducing the banks’ profitability and what might be otherwise available to support growth opportunities across Europe.

“Moving forward, we anticipate that bank management teams will focus on NPE management and targeted portfolio sales and many will also be looking at their performing exposures to ensure they are truly profitable.

“The ECB’s Comprehensive Assessment’s results was the first step to the path to a sustainable European banking industry and the process is a foretaste of the supervisor’s data-driven approach. We can certainly expect to see greater transparency across the sector as it becomes increasingly comparable.”

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Sunak to use budget to expand apprenticeships in England



Sunak to use budget to expand apprenticeships in England 1

LONDON (Reuters) – British finance minister Rishi Sunak will announce more funding for apprenticeships in England when he unveils his budget next week, the government said on Friday.

Employers taking part in the Apprenticeship Initiative Scheme will from April 1 receive 3,000 pounds ($4,179) for each apprentice hired, regardless of age – an increase on current grants of between 1,500 and 2,000 pounds depending on age.

The scheme will extended by six months until the end of September, the finance ministry said.

Sunak will also announce an extra 126 million pounds for traineeships for up to 43,000 placements.

Sunak’s March 3 budget will likely include a new round of spending to prop up the economy during what he hopes will be the last phase of lockdown, but he will also probably signal tax rises ahead to plug the huge hole in the public finances.

Sunak is also expected to announce a “flexi-job” apprenticeship scheme, whereby apprentices can join an agency and work for multiple employers in one sector, the finance ministry said.

“We know there’s more to do and it’s vital this continues throughout the next stage of our recovery, which is why I’m boosting support for these programmes, helping jobseekers and employers alike,” Sunak said in a statement.

(Reporting by Andy Bruce, editing by David Milliken)

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UK seeks G7 consensus on digital competition after Facebook blackout



UK seeks G7 consensus on digital competition after Facebook blackout 2

LONDON (Reuters) – Britain is seeking to build a consensus among G7 nations on how to stop large technology companies exploiting their dominance, warning that there can be no repeat of Facebook’s one-week media blackout in Australia.

Facebook’s row with the Australian government over payment for local news, although now resolved, has increased international focus on the power wielded by tech corporations.

“We will hold these companies to account and bridge the gap between what they say they do and what happens in practice,” Britain’s digital minister Oliver Dowden said on Friday.

“We will prevent these firms from exploiting their dominance to the detriment of people and the businesses that rely on them.”

Dowden said recent events had strengthened his view that digital markets did not currently function properly.

He spoke after a meeting with Facebook’s Vice-President for Global Affairs, Nick Clegg, a former British deputy prime minister.

“I put these concerns to Facebook and set out our interest in levelling the playing field to enable proper commercial relationships to be formed. We must avoid such nuclear options being taken again,” Dowden said in a statement.

Facebook said in a statement that the call had been constructive, and that it had already struck commercial deals with most major publishers in Britain.

“Nick strongly agreed with the Secretary of State’s (Dowden’s) assertion that the government’s general preference is for companies to enter freely into proper commercial relationships with each other,” a Facebook spokesman said.

Britain will host a meeting of G7 leaders in June.

It is seeking to build consensus there for coordinated action toward “promoting competitive, innovative digital markets while protecting the free speech and journalism that underpin our democracy and precious liberties,” Dowden said.

The G7 comprises the United States, Japan, Britain, Germany, France, Italy and Canada, but Australia has also been invited.

Britain is working on a new competition regime aimed at giving consumers more control over their data, and introducing legislation that could regulate social media platforms to prevent the spread of illegal or extremist content and bullying.

(Reporting by William James; Editing by Gareth Jones and John Stonestreet)


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Britain to offer fast-track visas to bolster fintechs after Brexit



Britain to offer fast-track visas to bolster fintechs after Brexit 3

By Huw Jones

LONDON (Reuters) – Britain said on Friday it would offer a fast-track visa scheme for jobs at high-growth companies after a government-backed review warned that financial technology firms will struggle with Brexit and tougher competition for global talent.

Finance minister Rishi Sunak said that now Britain has left the European Union, it wants to make sure its immigration system helps businesses attract the best hires.

“This new fast-track scale-up stream will make it easier for fintech firms to recruit innovators and job creators, who will help them grow,” Sunak said in a statement.

Over 40% of fintech staff in Britain come from overseas, and the new visa scheme, open to migrants with job offers at high-growth firms that are scaling up, will start in March 2022.

Brexit cut fintechs’ access to the EU single market and made it far harder to employ staff from the bloc, leaving Britain less attractive for the industry.

The review published on Friday and headed by Ron Kalifa, former CEO of payments fintech Worldpay, set out a “strategy and delivery model” that also includes a new 1 billion pound ($1.39 billion) start-up fund.

“It’s about underpinning financial services and our place in the world, and bringing innovation into mainstream banking,” Kalifa told Reuters.

Britain has a 10% share of the global fintech market, generating 11 billion pounds ($15.6 billion) in revenue.

The review said Brexit, heavy investment in fintech by Australia, Canada and Singapore, and the need to be nimbler as COVID-19 accelerates digitalisation of finance, all mean the sector’s future in Britain is not assured.

It also recommends more flexible listing rules for fintechs to catch up with New York.

“We recognise the need to make the UK attractive a more attractive location for IPOs,” said Britain’s financial services minister John Glen, adding that a separate review on listings rules would be published shortly.

“Those findings, along with Ron’s report today, should provide an excellent evidence base for further reform.”


Britain pioneered “sandboxes” to allow fintechs to test products on real consumers under supervision, and the review says regulators should move to the next stage and set up “scale-boxes” to help fintechs navigate red tape to grow.

“It’s a question of knowing who to call when there’s a problem,” said Kay Swinburne, vice chair of financial services at consultants KPMG and a contributor to the review.

A UK fintech wanting to serve EU clients would have to open a hub in the bloc, an expensive undertaking for a start-up.

“Leaving the EU and access to the single market going away is a big deal, so the UK has to do something significant to make fintechs stay here,” Swinburne said.

The review seeks to join the dots on fintech policy across government departments and regulators, and marshal private sector efforts under a new Centre for Finance, Innovation and Technology (CFIT).

“There is no framework but bits of individual policies, and nowhere does it come together,” said Rachel Kent, a lawyer at Hogan Lovells and contributor to the review.

($1 = 0.7064 pounds)

(Reporting by Huw Jones; editing by Jane Merriman and John Stonestreet)


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