The banking industry faces challenging times. It is a mature industry vulnerable to newer, sometimes unregulated entrants eager to take profitable segments of business. Simultaneously, the industry is more closely regulated than previously and the costs of being a bank are escalating. Considering these factors combined with a low interest rate environment and challenging economic environments, it is plain to see that the banking sector is clearly an industry under pressure that is being forced to innovate.
One of the innovations made by the Single Supervisory Mechanism (SSM) is greater use of peer comparisons as a supervisory tool. This is driven by the ECB’s goal of ensuring a harmonized supervisory approach across Europe and facilitating the availability of data on larger numbers of banks to make this level of peer comparisons possible. Peer analysis makes for an excellent supervisory tool, and where the same or similar data is available to banks, it can also help banks to understand their place in the market and for preparing for conversations with their supervisor.
In January 2016, the European Central Bank (ECB) set out five high-level supervisory priorities for the year. In this report, we examine how banks in the five largest peer groups against these supervisory priorities using KPMG Peer Bank. The peer groups in the KPMG Peer Bank are based on the size of banks and their business model – similar to the ECB’s methodology for assigning peer groupings. Using these peer groups, we identified a few key metrics that reflect the supervisory priorities and consider which supervisory insights arise.
We consider three key areas in this report: profitability, non-performing loans (NPLs), and capital adequacy: