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Business and Economics > Banks and Banking

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Cover IMF Staff Country Reports
Euro Area Policies: Selected Issues
International Monetary Fund. European Dept.
This Selected Issues paper highlights quantitative tightening (QT) by the European Central Bank (ECB). It uses evidence from the literature on the impact of central bank bond purchases and sales on bond yields, and the monetary policy stance, to outline a roadmap for reducing the Euro system’s bond holdings. The current tightening cycle provides an opportunity to revisit the ECB’s balance sheet policy. With inflation running above target, the monetary accommodation provided by the ECB’s bond holding is no longer necessary. The current tightening cycle provides an opportunity to revisit the ECB’s balance sheet policy. With inflation running above target, the monetary accommodation provided by the ECB’s bond holding is no longer necessary. The paper concludes that the ECB’s short term policy rates should be the main choice for adapting the monetary policy stance to changing circumstances and QT should proceed in a gradual, predictable manner as outlined by the ECB.
Keywords:
ECB Policy rate; ECB balance sheet; app portfolio; C. Policy consideration; bond supply net of ECB; Financial statements; Unconventional monetary policies; Central bank policy rate; Monetary stance; Securities
Cover IMF Working Papers
European Housing Markets at a Turning Point – Risks, Household and Bank Vulnerabilities, and Policy Options
Ms. Laura Valderrama
,
Patrik Gorse
,
Ms. Marina Marinkov
, and
Petia Topalova
European housing markets are at a turning point as the cost-of-living crisis has eroded real incomes and the surge in interest rates has made borrowers more vulnerable to financial distress. This paper aims to (i) shed light on the risks in European housing markets, (ii) quantify household vulnerabilties, (iii) assess banking sector implications and (iv) examine policies’ effectiveness using simulations based on microdata from the Household Finance and Consumption Survey (HFCS) and EU statistics on income and living conditions (EU-SILC). Under the baseline IMF macroeconomic forecast, the share of households that could struggle to meet basic expenses could rise by 10 pps reaching a third of all households by end 2023. Under an adverse scenario, 45 percent of households could be financially stretched, representing over 40 percent of mortgage debt and 45 percent of consumer debt. The impact on the banking sector seems contained under the baseline forecast, though there are pockets of vulnerability. A 20 percent house price correction could deplete CET1 capital by 100-300 basis points. Fiscal measures, such as subsidies to the bottom income tercile, could save 7 percent of households from financial distress at an estimated cost of 0.8 percent of GDP.
Keywords:
Housing markets; overvaluation; affordability; household vulnerability; tenure status; income distribution; consumption; financial stability; targeted support; macroprudential policy.; EU banking sector; banking sector implication; housing market correction; house price correction; bank capital; Mortgages; Housing prices; Income; Housing; Europe; Eastern Europe
Cover IMF Staff Country Reports
Cyprus: Technical Assistance Report-Debt and Cash Management
International Monetary Fund. Monetary and Capital Markets Department
In tandem with Eurozone financial market developments and the prevalence of negative interest rates in 2020, Cypriot banks passed through the costs of their liquidity to their customers, reducing the attractiveness of placing PDMO cash surpluses in domestic bank deposits. Suitable investment alternatives to central bank deposits for the PDMO’s liquidity buffer are scarce, given negative yields on other Eurozone sovereign and agency issues. This situation is shared by the PDMO with almost all of its Eurozone peers. While this is likely to persist in the short term, it should not preclude establishing a framework governing the PDMO’s investment policy or a suitable set of guidelines.
Keywords:
cash management practice; funding plan; cash liquidity buffer; investment option; debt Management Office; Government cash forecasting; Government debt management; Liquidity requirements; Currencies; Debt management; Global; Europe
Cover Departmental Papers
Managing Systemic Banking Crises: New Lessons and Lessons Relearned
Ms. Marina Moretti
,
Mr. Marc C Dobler
, and
Mr. Alvaro Piris Chavarri
This paper updates the IMF’s work on general principles, strategies, and techniques from an operational perspective in preparing for and managing systemic banking crises in light of the experiences and challenges faced during and since the global financial crisis. It summarizes IMF advice concerning these areas from staff of the IMF Monetary and Capital Markets Department (MCM), drawing on Executive Board Papers, IMF staff publications, and country documents (including program documents and technical assistance reports). Unless stated otherwise, the guidance is generally applicable across the IMF membership.
Keywords:
DPPP; DP; balance sheet; financial crisis; bridge bank; insurance fund; economic activity; public funds; bank; authority; process; bank liquidity; beneficial owner; due diligence; banking system; equity capital; targeted bank diagnostic; financial activity; cash flow; home resolution authority; bank risk; cash limit; Bank resolution framework; Global financial crisis of 2008-2009; Deposit insurance; Crisis management; Global; Europe
Cover IMF Staff Country Reports
Cyprus: Selected Issues
International Monetary Fund. European Dept.
This Selected Issues paper assesses Cyprus’s export competitiveness and understands factors that could explain export developments, particularly in the services sector. Although Cyprus has been able to leverage its strategic location to diversity its markets for goods exports, as a small island economy, opportunities for diversifying its products mix is more limited. Services exports have performed better in the post-crisis period buoyed by the recovery in Europe and the impact of technological advances on global Information and Communication Technologies-enabled trade. Policies to support greater market diversification, enhance competition and efficiency and strengthen technological adoption would help exports growth. Studies have established the relationship between price and cost competitiveness with trade performance. Cyprus has performed reasonably well with strong service exports over the past few years, aided by improvements in cost competitiveness and a recovery in the European export markets. Policymakers should exploit opportunities brought by the digital transformation while addressing the accompanied risks.
Keywords:
ISCR; CR; export; bank; Cyprus; Cypriot bank; challenger bank; banks in Cyprus; IMF staff calculation; services export; Service exports; Exports; Digitalization; Export performance; Fintech; Global; Europe
Cover IMF Staff Country Reports
Cyprus: 2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Cyprus
International Monetary Fund. European Dept.
This 2019 Article IV Consultation with Cyprus discusses that following a period of very rapid growth in the aftermath of the economic crisis, growth is gradually settling in at a more sustainable but still relatively robust pace despite the external slowdown. Output is projected to rise by around 3 percent in 2019–20, supported by construction and services sectors. Good progress has been made in addressing domestic and external stability risks arising from legacies of the financial crisis. Sales of nonperforming loans (NPLs), amendments to the foreclosure and insolvency framework and resolution of a large systemic bank have helped strengthen bank balance sheets. Reversal of reforms to the foreclosure framework would hinder ongoing NPL resolution efforts and create risks for financial stability. Realization of contingent liabilities from the still weak banking sector or increased fiscal spending pressures could undermine investor confidence, raising interest costs and depressing growth. Cyprus needs to build on recent gains by advancing reforms to secure macroeconomic stability, enhance efficiency and strengthen productivity and growth potential.
Keywords:
ISCR; CR; Cyprus; growth; Cyprus economy; EFF arrangement; debt; banking sector vulnerability; liability positions vis-à-vis nonresident; Republic of Cyprus' bond; debt vulnerability; Nonperforming loans; Loans; Fiscal stance; Global; Europe
Cover IMF Working Papers
Breaking the Bank? A Probabilistic Assessment of Euro Area Bank Profitability
Mr. Selim A Elekdag
,
Sheheryar Malik
, and
Ms. Srobona Mitra
This paper explores the determinants of profitability across large euro area banks using a novel approach based on conditional profitability distributions. Real GDP growth and the NPL ratio are shown to be the most reliable determinants of bank profitability. However, the estimated conditional distributions reveal that, while higher growth would raise profits on average, a large swath of banks would most likely continue to struggle even amid a strong economic recovery. Therefore, for some banks, a determined reduction in NPLs combined with cost efficiency improvements and customized changes to their business models appears to be the most promising strategy for durably raising profitability.
Keywords:
WP; profitability distribution; bank profitability; NPL ratio; standard deviation; bank ROE probability distributions; banks performance; loan growth; Ulster bank Ireland DAC; alpha bank AE; probability distributions; bank capital; indebted bank borrower; probability distributions for a representative; bank return on assets; Bank soundness; Nonperforming loans; Personal income; Yield curve; Loan loss provisions; Global; Europe
Cover IMF Working Papers
The Long Shadow of the Global Financial Crisis: Public Interventions in the Financial Sector
Ms. Deniz O Igan
,
Hala Moussawi
,
Alexander F. Tieman
,
Ms. Aleksandra Zdzienicka
,
Mr. Giovanni Dell'Ariccia
, and
Mr. Paolo Mauro
We track direct public interventions and public holdings in 1,114 financial institutions over the period 2007–17 in 37 countries based on publicly available information. We use aggregate official data to validate this new dataset and estimate the fiscal impact of interventions, including the value of asset holdings remaining in state hands at end-2017. Direct public support to financial institutions amounted to $1.6 trillion ($3.5 trillion including guarantees), with larger amounts allocated to lower capitalized and less profitable banks. As of end-2017, only a few countries had fully divested the initial support they provided during the crisis. Public holdings were divested faster in better capitalized, more profitable, and more liquid banks, and in countries where the economy recovered faster. In countries where the government stake remained high relative to the initial intervention, private investment and credit growth were slower, financial access, depth, efficiency, and competition were worse, and financial stability improved less.
Keywords:
WP; bank characteristic; bank variable; country condition; return on assets; intervened bank; Financial crisis; Government interventions; Bank resolution; asset holding; asset quality; system assets; government intervention; asset purchase; cash flow; Stocks; Financial sector; Loans; Liquidity; State-owned banks; Global
Cover IMF Staff Country Reports
Cyprus: Third Post-Program Monitoring Discussions-Press Release and Staff Report
International Monetary Fund. European Dept.
This paper presents the Third Post-Program Monitoring discussions with Cyprus. Cyprus’s rapid recovery is expected to slow gradually; however, the outlook remains favorable. Economic growth is gradually decelerating but remains strong, buoyed by the services and construction sectors, partly financed with foreign direct investment. While employment is picking up, wage pressures and inflation remain low. A large fiscal surplus is helping to lower public debt after a sizable one-off increase related to the sale of Cyprus Cooperative Bank in the year 2018. Repayment capacity appears to be adequate under the baseline scenario given the expected decline of gross public debt, a stable debt servicing profile, and continued favorable market conditions. Policies should aim to continue strengthening bank balance sheets while avoiding the commitment of public resources. The Estia scheme, aimed at encouraging non-performing borrowers to start servicing their loans, should not be allowed to lead to further risks of moral hazard. The subsidy support, mandated write-offs by banks and enhanced foreclosure threats on re-defaulting restructured loans are expected to strengthen incentives to service restructured loans.
Keywords:
ISCR; CR; Cyprus; IMF staff estimate; capacity; growth outlook; CCB's non-performing loans; General government balance; crisis economic recovery; NPL portfolio; executive board assessment; Nonperforming loans; Loans; Debt service; Fiscal stance; Global
Cover IMF Staff Country Reports
Republic of Armenia: Detailed Assessment of Observance of the Basel Core Principles for Effective Banking Supervision
International Monetary Fund. Monetary and Capital Markets Department
This detailed assessment of observance has been conducted against the standard issued by the Basel Committee on Banking Supervision in 2012. The report also highlights that the Central Bank of Armenia has made significant progress in its approach to banking supervision with adoption of the risk-based program (RBS) framework and addressing gaps in the regulatory framework identified in the 2012 Basel Core Principles assessment. Improvements have been made in the regulatory regime regarding requirements for risk management, stress testing, corporate governance, country risk and consolidated supervision. Although the supervisory regime has recently transitioned from a rules-based to an RBS, there is a need for continued refinement of the program for more granular assessments of firms’ capital needs. The process for conducting risk assessments of each firm has identified a need for building a stronger and more structured (system-wide) understanding of the level and magnitude of risk and the risk management capabilities across banking firms.
Keywords:
ISCR; CR; risk management; central bank; risk profile; business plan; bank's Board; internal audit; senior management; credit risk; risk appetite; corporate culture; Market risk; Credit risk; Bank risk management; Stress testing; Bank supervision; Global