PwC: Bank­ing cri­sis not over yet

Financial Mirror (Cyprus) - - FRONT PAGE -

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, 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.

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