One of the ‘Big 4’ audit and advisory firms that has worked with over 60% of banks in the comprehensive assessment exercise by the European Central Bank and the European Banking Authority said that a solution to the banking crisis is not over yet and challenges still remain.
The Comprehensive Assessment is a special prudential exercise performed by the ECB under a specific regulatory framework which differs in many important respects from International Financial Reporting Standards.
In response to the publication of the ECB’s Comprehensive Assessment results, Colin Brereton, economic crisis response Lead partner at PwC, said that “the Comprehensive Assessment results are in, and although this should restore some confidence and stability to the market, we are still far from a solution to the banking crisis and the challenges facing the banking sector.
“The Comprehensive Assessment was only a one-off test of solvency, not of ongoing viability,” Brereton said, adding that “the test of long-term viability is whether banks can generate sufficient returns to cover all their costs, including capital costs. The immediate focus will be on those institutions that have failed the Assessment. They will need to raise additional capital, and shareholders will look for assurances on getting a return on that capital.
“All banks, including those that have passed the test today, must offer a satisfactory return to their shareholders. For those banks in relatively better shape, there are potential growth opportunities,” he concluded.
As regards the positive results of the comprehensive assessment of the Cypriot banks, Stelios Constantinou, Banking Industry Leader at PwC Cyprus, said that “our four banks have responded positively to the strict asset quality review requirements and stress tests. We have to recognise the progress they made over the last year and also acknowledge that there is still work to be done to restore fully investor confidence.”
“We have to continue with the necessary changes and reforms that will make the country more competitive, banks must be open to changes in the way they structure and fund their businesses,” Constantinou said, adding that “there will be continued pressure on bank balance sheets, including focus on the management of non-performing loans, capital adequacy, liquidity and leverage.
“The sustainability of banks will also be under supervisor scrutiny as part of their review and evaluation process, for which the Comprehensive Assessment is the starting point,” he concluded.
PwC said that it has worked with over 60% of banks in the comprehensive assessment exercise, either as “AQR auditors” for the national competent authorities (NCAs) of 32 banks across 12 countries or providing AQR bank side support (46 institutions across ten countries), as well as advised banks on the stress test.
