Enria is the chief banking supervisor of the European Central Bank.
(Photo: Reuters)
Frankfurt Although there is hardly a speech by a European bank boss in which the topic of digitization does not appear prominently, the banking supervisory authorities believe that the banks are not spending enough money on the restructuring.
The corona pandemic has raised awareness that such projects can be worthwhile because banks can use them to win new customers, improve access to existing customers and reduce costs, said the chief banking supervisor of the European Central Bank (ECB), Andrea Enria, on Wednesday.
“Nevertheless, the amount of investment by the banks remains limited,” complained the Italian. In 2021, financial institutions would only have invested an average of 2.8 percent of their net operating income in digital transformation. In Enria’s opinion “a little bit to solve the challenges that we have”.
According to Enria, investments in the modernization of IT systems are also essential because of the growing dangers of cyber attacks. The number of attacks had already increased during the pandemic. “It has now remained at this elevated level after the Russian invasion of Ukraine,” the warden stressed.
>> Read here: Pro-Russian hackers threaten retaliation for Leopard decision.
Enria also sees room for improvement in the control systems of the financial institutions. “Many banks have a fragmented IT landscape and insufficient ability to summarize risk data.” The managers of the banks are well aware of the problems, but there is a lack of incentives for the necessary investments.
After all, these would immediately depress the profits of the institutes – but would only pay off years later. That is why Enria wants to “increase the supervisory pressure”. The ECB has been addressing these issues for years. Now it’s time to fix them.
Big banks are making more profits than they have in a long time
The lack of control has consequences for the individual capital add-ons that the ECB demands from the major European banks that it directly monitors. The business model and profitability of banks play an important role in this. In the past year, thanks to the turnaround in interest rates and the low loan defaults, the institutes were more profitable than they had been for a long time.
The average return on equity at the end of the third quarter of 2022 was 7.6 percent and thus higher than at any time since the introduction of the uniform EU banking supervision in 2014. However, due to the weaknesses in the control systems, the capital buffers required by the ECB remained roughly at the previous year’s level .
Enria expects the big banks to earn well in 2023 as well. However, the tougher competition for customer deposits will mean that the institutes will benefit less from the difference between deposit and lending rates than before.
>> Read here: Bankers and financial supervisors are increasingly clashing.
In the debate about the business of banks in Russia or with Russian customers, Enria called on the financial institutions concerned to further reduce their involvement. “If banks have the ability to scale back or exit these types of deals, that would be something we would support from a supervisory perspective.”
Some banks have already sold their branches in Russia and left the country, Enria reported. In the meantime, however, such a step has become difficult for foreign institutes because of the “more hostile” approach of the Russian authorities.
The financial institutions particularly affected include the major Italian bank Unicredit, whose Russian subsidiary is one of the 15 largest institutions in the country. Unicredit’s total commitment in Russia was recently 5.3 billion euros. According to financial circles, the institute has already clashed with the ECB over its Russian business.
Claudia Buch is traded as Enria’s successor
Enria will step down as the ECB’s chief banking supervisor at the end of the year. Bundesbank Vice President Claudia Buch is being traded as a possible successor. The Bundesbank declined to comment.
Enria has always advocated further integration of the European banking market and has put some measures in place to facilitate cross-border mergers. So far, however, large banks have shied away from such complex transactions.
From the supervisor’s point of view, this could change if the framework conditions for banks and their market values continue to improve. “If there is no further shock this year, there may be more cross-border developments – but probably not during my tenure.”
Collaboration: Jan Mallien
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