3 Issuing costs of state guaranteed bonds - Financial Risk and ...

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4 Impact of state guaranteed bonds on bank lending, funding and profitability performance Currency considerations Bloomberg data Bloomberg report the value of a bond in the currency at which the bond is issued. Using monthly exchange rates obtained from the European Central Bank the values have all been converted to Euros. The remaining data from Bloomberg is reported in percentages or ratios, so there are no currency considerations associated with those data. BankScope data BankScope convert all values from the currency in which the annual report is filed into U.S. dollars using exchange rate data from the International Monetary Fund. BankScope use the prevailing exchange rate on the nearest date to the date of the close of the reports. For the purpose of this study, the dollar-values have been converted to Euros using average annual exchange rates obtained from the European Central Bank. Eurostat data Eurostat provide central bank interest rate, which is measured in percentages, and real GDP per capita, which is standardised using the Purchasing Power Parity. Thus, there is no need to exchange rate adjust the Eurostat data. Data frequency Bankscope provides data at the quarterly level whenever it is available, and as this is the desired data frequency, such data was reviewed. Unfortunately, data at the quarterly level is scarce. Of a total of 213 state guaranteed and comparison banks, an average of 32 observations was available per variable per quarter. Due to this, the analysis of bank outcomes uses annual data, which consists of an average of 140 observations per variable per year. Annex 6 provides details of data availability at the quarterly and annual data. 4.3 Descriptive analysis of the impact of the issue of guaranteed bonds on banks’ performance This section provides a brief analysis of the performance of banks having benefitted from a guaranteed bond issues relative to banks which issued non-guaranteed bonds that would have qualified for the guarantee schemes. The sample of EU27 banks comprises 142 banks which, over the period 2008-2011, either issued only guaranteed bonds or a mixture of guaranteed and non-guaranteed bonds which would have qualified for a guarantee. In addition, there are 71 banks which did only issue non-guaranteed bonds which would have qualified for a guarantee. 88
4 Impact of state guaranteed bonds on bank lending, funding and profitability performance In order to compare the performance of the two types of banks, the descriptive analysis below focuses on the change in a number of key balance sheet items one year after the issue of the state guaranteed bonds relative to the year immediately preceding the issue of the guaranteed bond. The following balance sheet items are considered in the analysis below: Assets net loans 17 Liabilities total deposits and short-term funding total long-term funding total liabilities and equity The data used in the analysis and their source are described above. Unfortunately, the analysis of the changes in the balance sheet items has to be limited to the items listed above as detailed information on the various types of loans on the asset side and deposits on the liability side is missing for an overwhelming majority of the banks in our sample. In addition, a comparison of the profit performance of the two bank groups following the issue of guaranteed bonds is also undertaken below. To that end, two different profit indicators are used, namely a) the ratio of net interest income to total liabilities and equity, and b) the ratio of operating income to total liabilities and equity. As data are only available annually for the majority of the banks in our sample, changes between end-year figures are used when the performance of banks is measured at the level of the balance sheet and changes between annual figures are used when the focus of the analysis is profitability. The basic idea underlying the post-issue period /pre-issue period comparison is that the full impact of the issue on either the asset or the liability side of the balance sheet is likely to take some time to materialise. For the purpose of the analysis we assume that this adjustment lag is at a minimum 3 quarters. If quarterly data were available, it would be easy to compute the change in a balance sheet item between the end of quarter t+3 and the end of quarter t-1 with quarter t being the quarter of the issue of the guaranteed bonds. With annual data, the definition of the pre- and post-issue periods is somewhat less precise as the lag between the post-issue period and the issue period, when measured in terms of quarters, unavoidably varies depending on the issue quarter. 17 Net loans includes Residential Mortgage Loans + Other Mortgage Loans + Other Consumer/ Retail Loans + Corporate & Commercial Loans + Other Loans-Reserve against possible losses on impaired or non performing loans 89
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Economic Papers are written by the
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Wherever possible London Economics
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Contents Page Annex 4 Results of di
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Tables, Figures & boxes Page Table
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Glossary vi Glossary BGN Bloomberg
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Executive summary Member States (Cy
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1 Introduction 1 Introduction 1.1
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1 Introduction 1.4 Research questi
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1 Introduction analysis of the lat
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2 Overview of state guarantee sche
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Annex 2 Comparison of SG and non-SG
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Annex 3 Analysis of missing issuin
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Annex 3 Analysis of missing issuing
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Annex 3 Analysis of missing issuing
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Annex 4 of diagnostic tests of issu
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Annex 4 of issuing cost model Figur
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Annex 5 -over model Annex 5 Results
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Annex 5 -over model Figure 25: Anal
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Annex 6 Availability of bank data A
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Annex 6 Availability of bank data T
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Annex 7 Linking Bloomberg and Banks
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Annex 8 Investigation of estimation
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