Expectation-setting with individual banks – the latest initiative in the ECB’s ongoing mission to deal with legacy NPL stocks in the euro area – is unlikely to have a major impact on in-process improvements in the overall landscape.
Using a benchmark of comparables and on the basis of NPL ratios and financial orientation, the ECB plans to set individual supervisory expectations around NPL management in order to achieve the same coverage of the stock and flow of bad loans over the medium term.
Supervisory dialogue already captures banks’ divergences from the prudential provisioning expectations laid out in the ECB’s March 2018 Addendum (and incorporated into the Supervisory Review and Evaluation Process from 2021). The latest initiative will likely have little impact on the majority of banks in most jurisdictions. Particularly as the NPL problem is in any case restricted to a small group of banks in a limited number of jurisdictions which experienced chronic economic and banking problems through the global financial crisis, euro sovereign crisis and since.
“I don’t see much novelty here: asset quality is already a part of the bank-supervisory dialogue – and a big part of it for banks with high NPLs. The ECB is merely formalising an approach it has likely held for some time,” said Marco Troiano, executive director in the banks team at Scope Ratings.
This new element of supervisory expectation-setting represents just the latest in a series of steps by the ECB and EBA to slay what they still see as the bête noire of legacy bad loans. They believe the aggregate level is still too high compared to international standards.
Potential future NPLs have been addressed through new provisioning rules – 100% coverage in two years for unsecured facilities; seven years for secured – as well as accounting rules that force banks to provision on an ongoing expected-loss basis.
On this latter point, the ECB acknowledged in its May Financial Stability Review that NPL coverage had continued to edge up in high-NPL countries, partly as a result of IFRS 9. “Based on public disclosures for a sub-set of high-NPL banks applying transitional arrangements under IFRS 9, the median estimated increase in NPL coverage due to IFRS 9 first-time adoption from the beginning of 2018 was four percentage points relative to stated end-2017 coverage levels,” the ECB noted. That is not trivial.
The continued focus on NPLs from policy makers, regulators and supervisors flies in the face of multi-year improvements. The significant institutions supervised by the ECB have reduced their NPL ratios from 8% in 2014 (the point at which the Bank started treating credit risk as a supervisory priority) to 4.9% by the end of 2017. In Q4 2017, the average NPL ratio for EU banks reached its lowest level since Q4 2014. Steady NPL sales activity over 2018 will have further reduced the ratios.
By way of comparison, however, the NPL ratio in the US was just 1.127% at the end of 2017, using World Bank data.
“Supervisors like to claim merit for the reduction in NPLs in Europe in recent years, but this is mostly driven by the improvement in economic conditions. NPLs are a lagged function of economic growth,” said Troiano.
The ECB noted in the Financial Stability Review that lower impairments costs were the main driver of higher bank profitability as new NPL formation slowed. The number of significant institutions with double-digit NPL ratios nearly halved over the last three years, the Bank noted, adding that for a sample of 17 high-NPL banks publicly disclosing their quantitative targets, the median reduction in NPL ratios would be around seven percentage points by the end of their target horizon (varying from 2019 to 2022).
Countries at the high end of pretty widespread cross-EU dispersion still lie at the heart of the issue. If overall NPL ratios by country range wildly (from 0.7% to 44.9%), non-performing exposures to real estate starkly highlight the issue. Greece had an NPL ratio in this category of 56.2%, while eight countries had ratios in excess of 20% – Cyprus (43.3%), Bulgaria (42.3%), Italy (34%), Portugal (33.4%), Ireland (30.2%), Slovenia (30%), Croatia (29.9%) and Romania (21.8%). Data for construction shows a similar trend.
“The continued focus on NPLs supports risk-reduction efforts as part of the Banking Union but should not be overplayed. This is yesterday’s battle. Tomorrow’s battles involve sovereign risk, cyber risk and banks’ readiness to upwards interest-rate shocks” said Troiano. “The ECB has done a good job helping banks improve the quality of their balance sheets. But if I had to weigh what has mattered most between the SSM’s several announcements and initiatives in this area and Mario Draghi’s monetary policy, I’d say the latter.”
U.S. inauguration turns poet Amanda Gorman into best seller
WASHINGTON (Thomson Reuters Foundation) – The president’s poet woke up a superstar on Thursday, after a powerful reading at the U.S. inauguration catapulted 22-year-old Amanda Gorman to the top of Amazon’s best-seller list.
Hours after Gorman’s electric performance at the swearing-in of President Joe Biden and Vice President Kamala Harris, her two books – neither out yet – topped Amazon.com’s sales list.
“I AM ON THE FLOOR MY BOOKS ARE #1 & #2 ON AMAZON AFTER 1 DAY!” Gorman, a Los Angeles resident, wrote on Twitter.
Gorman’s debut poetry collection ‘The Hill We Climb’ won top spot in the online retail giant’s sale charts, closely followed by her upcoming ‘Change Sings: A Children’s Anthem’.
While poetry’s popularity is on the up, it remains a niche market and the overnight adulation clearly caught Gorman short.
“Thank you so much to everyone for supporting me and my words. As Yeats put it: ‘For words alone are certain good: Sing, then’.”
Gorman, the youngest poet in U.S. history to mark the transition of presidential power, offered a hopeful vision for a deeply divided country in Wednesday’s rendition.
“Being American is more than a pride we inherit. It’s the past we step into and how we repair it,” Gorman said on the steps of the U.S. Capitol two weeks after a mob laid siege and following a year of global protests for racial justice.
“We will not march back to what was. We move to what shall be, a country that is bruised, but whole. Benevolent, but bold. Fierce and free.”
The performance stirred instant acclaim, with praise from across the country and political spectrum, from the Republican-backing Lincoln Project to former President Barack Obama.
“Wasn’t @TheAmandaGorman’s poem just stunning? She’s promised to run for president in 2036 and I for one can’t wait,” tweeted former presidential candidate Hillary Clinton.
A graduate of Harvard University, Gorman says she overcame a speech impediment in her youth and became the first U.S. National Youth Poet Laureate in 2017.
She has now joined the ranks of august inaugural poets such as Robert Frost and Maya Angelou.
Her social media reach boomed, with her tens of thousands of followers ballooning into a Twitter fan base of a million-plus.
“I have never been prouder to see another young woman rise! Brava Brava, @TheAmandaGorman! Maya Angelou is cheering—and so am I,” tweeted TV host Oprah Winfrey.
Gorman’s books are both due out in September.
Third on Amazon’s best selling list was another picture book linked to politics and projecting hope: ‘Ambitious Girl’ by Vice-President Kamala Harris’ niece, Meena Harris.
(Reporting by Umberto Bacchi @UmbertoBacchi, Editing by Lyndsay Griffiths. Please credit the Thomson Reuters Foundation, the charitable arm of Thomson Reuters, that covers the lives of people around the world who struggle to live freely or fairly. Visit http://news.trust.org)
Why brands harnessing the power of digital are winning in this evolving business landscape
By Justin Pike, Founder and Chairman, MYPINPAD
Delivery of intuitive, secure, personalised, and frictionless user experiences has long been table stakes in digital commerce, well before the era of COVID-19. As businesses harness the revolutionary power of digital technologies, they have pursued large-scale change to adapt to evolving consumer preferences (some more successfully than others, but that’s a blog for another day). Digital transformation is a term we hear repeatedly, and it looks different for each organisation, but essentially, it’s about utilising technology and data to digitise, automate, innovate and improve processes and the customer experience across the entire business.
As I said, this was already well underway but then came 2020 and no industry escaped the disruption of the coronavirus outbreak, which has had an indelible impact on businesses performance, operations, and revenue. Regardless of whether the impact of COVID has been very positive or very challenging, it has forced organisations globally to re-evaluate and re-orient strategies to adapt.
As lockdowns and pandemic-related restrictions continue to change daily life, this raises the question of how we can balance a dramatic shift to digital and the benefits it brings, while ensuring business continuity and innovation both during and post-COVID, and protecting everyone against fraud?
Digital is an essential survival tool, and even more so in a COVID world
No one could have predicted the dramatic digital pivot that has taken place over this year. Indeed, within weeks of the COVID outbreak cash usage in the UK dropped by around 50%. Digital solutions including delivery applications, contactless payments, mobile commerce, online and mobile banking have become essential components of a touchless customer experience in the era of social distancing. It’s no longer just about an enhanced and superior customer experience, it’s also about health, safety and survival.
In store, businesses have benefited from contactless payments enabling faster throughput and reduced need for consumers to touch payment terminals (therefore requiring greater cleaning, which degrades the hardware much faster). Mastercard reported a 40% increase in contactless payments – including tap-to-pay and mobile pay – during the first quarter of the year as the global pandemic worsened. Digital has also become an essential sales channel for many B2C brands. Where brick and mortar stores have been required to close, digital commerce enables continuity of customer relationships and revenue. This channel also provides brands with rich customer data, which can be used to enhance and personalise the customer experience and typically results in greater levels of engagement and uplifts in revenue.
Industry forecasts estimate that worldwide spending on the technologies and services enabling digital transformation will reach GBP 1.8 trillion in 2023 – a clear indication that the process represents a long-term investment and a global commitment to digital-first strategy. The key point here is that digital brings significant benefits, and regardless of COVID, is here to stay.
The challenges that rapid digital transformation brings to businesses
Regardless of whether businesses are operating in developed or less-developed economies, these times of crisis have levelled the playing field in the sense that all businesses are facing similar issues. Access to products and supplies, maintaining customer relationships, accelerating sales for some and declining sales for others, health and hygiene are just a few of the unique challenges brought about by COVID.
Many businesses in physical environments have had to swiftly implement changes to significantly reduce safety risks for staff and customers, such as contactless payments, mobile ordering and delivery options. But with these changes come a host of other benefits of digitisation, such as faster transactions, and reduced human error at the point-of-sale.
The reliance on technology, however, can also expose organisations and consumers to certain vulnerabilities. In particular, the risks of fraud and cybercrime have dramatically increased since the onset of the pandemic as scammers have taken advantage of digital technologies to target both businesses and individuals.
As a McKinsey report illustrates, new levels of sophistication in the activities of fraudsters have placed more pressure on companies that have been previously slow to go digital, bringing “into sharp relief how vulnerable companies really are”, and damaging the financial health of small and large businesses. In fact, the Bottomline 2020 Business Payments Barometer reveals that only one in 10 small businesses across the UK report recovering more than 50% of losses due to fraud.
But take these stats with a grain of salt. While it is important to be aware of the risks and challenges this new business landscape brings, it’s equally as important to have a lens firmly across your own business, industry and audience, and to identify the changes you can make internally to mitigate risk as well as improve your customer experience. Where can you make some quick wins? Do you have the right skillsets internally to achieve what you need to achieve? What technology is out there that will enable your business goals? There are tech companies like MYPINPAD that are making huge strides in software development, which will transform businesses globally.
A digital world post-COVID
Almost a year in, the line between business success and failure remains fragile. However, an ongoing transition towards greater digitisation will be the difference between survival and the alternative.
There is a wide range of initiatives businesses can implement to weather this storm. If we look at the space MYPINPAD operates within, secure digital consumer authentication is crucial to the ongoing success and security of not only financial products but also identification and verification across a range of different industry verticals. Shifting the authentication of consumers securely onto mobile devices enables businesses to completely reshape their customer experiences. By bringing together a more seamless, frictionless customer experience, accessibility, privacy, security and access to consumer data, businesses are able to drive digital transformation across day-to-day activities.
Against this backdrop, software with stronger security standards continue to play an ever more vital role in supporting society, protecting consumers and businesses from the increase in risks that rapid digitisation brings. Already, merchants can deploy PIN on Mobile technology from companies like MYPINPAD, onto their smart devices to speed up the digitisation process many are now tackling.
Essentially, opening up universal payments and authentication methods that feel familiar, for both online and face-to-face transactions, will be key to opening up a world of possibilities when it comes to redefining how businesses engage with consumers.
Brexit responsible for food supply problems in Northern Ireland, Ireland says
LONDON (Reuters) – Food supply problems in Northern Ireland are due to Brexit because there are now a certain amount of checks on goods going between Britain and Northern Ireland, Irish Foreign Minister Simon Coveney said.
British ministers have sought to play down the disruption of Brexit in recent days.
“The supermarket shelves were full before Christmas and there are some issues now in terms of supply chains and so that’s clearly a Brexit issue,” Coveney told ITV.
The Northern Irish protocol means there are “a certain amount of checks on goods coming from GB into Northern Ireland and that involves some disruption,” he said.
(Reporting by Guy Faulconbridge; Editing by Tom Hogue)
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