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Future of Bank Regulation Weighs on Investors at Banking Conference

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Thursday, July 13, 2017 2:18 PM / Fitch Ratings

How bank regulation evolves and how banks respond to regulatory changes are top issues for global banking investors and market participants based on discussions at Fitch Ratings' flagship Global Banking Conference, which toured the world starting in North America and continuing to Europe and Asia in June and July.

In New York, 45% of attendees said that higher capital standards have been most consequential in creating more resilience in banking. Joo-Yung Lee, Fitch's Head of North American Financial Institutions, commented: "Resolution planning has been one of the most constructive financial regulations from a credit standpoint; it has improved risk governance, particularly risk identification, and has helped banks rationalise their businesses and simplify their organizational structures."

In London, attendees named stress testing requirements marginally ahead of higher capital standards as the most consequential aspect of financial regulation with 34% versus 31% of the votes respectively. In Hong Kong, 50% of participants named higher capital standards.

When asked about their greatest concerns regarding EU banks, attendees' views also differed by region with 39% most concerned about earnings in London, 44% choosing asset quality in New York and 46% selecting asset quality in Hong Kong.

"For major European banks, we expect a slight improvement in earnings over the medium term, despite margins remaining under pressure from low interest rates. Nonetheless, euro area banks with elevated non-performing loans will continue to face high regulatory scrutiny from the ECB," said James Longsdon, Co-Head of Fitch's EMEA Financial Institutions team.

In Hong Kong, a key topic was how Chinese banks balance growth against stability. Jonathan Cornish, Head of Asia-Pacific Financial Institutions, said: "The majority of market participants believe that China will remain challenged by asset-quality problems, which we understand based on our own scenario analysis, but we also see rapid growth as having contributed to capital and liquidity pressures - especially among mid-tier banks - highlighting their weaker credit profiles relative to the state banks''.

Fitch's Global Banking Conference has been running for more than 20 years. It brings together Fitch's financial institutions analysts from around the world for discussions on the top credit issues impacting the banking industry.

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