Comprehensive Assessment: Banks must now “get their house in order” to prepare for the ECB’s supervisory role

Comprehensive Assessment: Banks must now “get the...

The European banking sector remains chronically unprofitable, and must address their exposure to non-performing loans.

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  • Today’s publication of the Comprehensive Results reinforces the strength of the European 
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  • KPMG calls for banks to “get their house in order” and adapt to the European Central Bank’s Single Supervisory Mechanism, or risk further actions from the regulator"

LONDON 26th October 2014 – Professional services firm KPMG has today welcomed the results of the European Central Bank’s (ECB) Comprehensive Assessment, but has warned of fundamental challenges ahead facing Europe’s banks.

Commenting on today’s results, Stephen Smith, co-head of the AQR taskforce at KPMG said:

“Today’s announcement is a vital, but only the first, step on the path to a sustainable European banking industry. The fact that through the process, over half of the capital raised was attributable to the Asset Quality Review and it identified further adjustments to non-performing exposures, reinforces the need for the Comprehensive Assessment."

“The assessment’s scrutiny of balance sheet and capital position of banks has been of unprecedented rigour and has implemented consistency across key indicators which should build confidence in the balance sheets of European banks. This has been reflected by virtue that the process has identified a €24.6bn shortfall, testament to the €60bn raised to strengthen the bank balance sheets."

“However, profitability remains a major issue. Undoubtedly bank management teams will now be reviewing their business models in a sector that remains chronically unprofitable. Their significant €879bn exposure to non-performing loans and the level of capital required to support those, is a particular area for concern and banks must seek to address this. Not only is this an issue for bank management and their shareholders, but it will also be the ECB’s as their new supervisor."

“Today’s publication of the results will both be a catalyst for industry consolidation, now the majority of banks have engaged in capital raising exercise and we have greater clarity around their financial positions, as well as non-performing loan portfolio sales.”

Commenting on the ECB’s Single Supervisory Mechanism, which is due to come into force from the 4th November 2014, Francisco Uria, co-head of the AQR taskforce at KPMG said:

“While the Comprehensive Assessment is a foretaste of the detailed data-driven approach the ECB will adopt as Single Supervisor, it has also made it clear that it will also scrutinise certain qualitative measures. This will have fundamental implications for banks, requiring them to ensure that their technology, processes and risk strategies are able to meet ECB’s future requirements."

“Similarly it will continue to benchmark banks against their European, rather than national peers, inevitably therefore challenging previously accepted national approaches. Banks that fail to adapt quickly run the risk that they are faced with low supervisory “scores”, which may in turn lead to supervisory actions, such as capital or liquidity add-ons.”


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About the Comprehensive Assessment:

On 26 October 2014, the European Central Bank (ECB) announced the results of its Comprehensive Assessment of the 130 largest banks in the Eurozone. For each bank, the Comprehensive Assessment included an Asset Quality Review (AQR) together with stress tests. The stress tests were co-ordinated with the European Banking Authority (EBA) which simultaneously announced the results of its EU-wide stress test exercise covering 123 banks across 22 EU countries.

The Comprehensive Assessment was a supervisory exercise designed to enhance the quality of information available on the condition of banks, identify problems and implement necessary corrective actions and assure all stakeholders that banks are fundamentally sound and trustworthy.

The mission of banking supervisors such as the ECB is to ensure the stability of the financial system and that banks have sufficient resources and resilience to weather the risks of future adverse changes in circumstances. The AQR was performed in accordance with a detailed methodology specified by the ECB and with a focus on conservatism. 

Similarly, the stress tests were a forward-looking exercise designed to understand the possible effects of hypothetical future developments on the capital position of banks. The results of both exercises are expressed in terms of their effect on a bank’s regulatory capital – i.e. Common Equity Tier 1 (CET1) capital.

For further information please contact:

Simon Chan, PR Assistant Manager, KPMG

T: 0207 694 2024

M: 07747 564 737


KPMG Press Office: +44 (0) 207 694 8773


About KPMG

KPMG LLP, a UK limited liability partnership, operates from 22 offices across the UK with approximately 11,500 partners and staff.  The UK firm recorded a turnover of £1.8 billion in the year ended September 2013. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. It operates in 155 countries and has 155,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.

This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK.

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