ECB Annual Report on supervisory activities

The quantitative impact of the adverse stress test scenario is one factor in
determining the level of Pillar 2 guidance (P2G). The qualitative outcome of the
stress tests is included in the determination of the Pillar 2 requirement (P2R) 3 .
Moreover, in addition to risks already identified through the ongoing supervisory
assessment, the stress test pointed to key vulnerabilities of euro area banks in the
event of an adverse shock. For instance, most loan losses came from unsecured
retail and corporate exposures. The stress test also identified lending to certain
geographies such as Latin America as well as Central and Eastern Europe as a
driver of credit losses.
The SSM supervisory priorities set out focus areas for supervision in a given year.
They build on an assessment of the key risks faced by supervised banks, taking into
account the latest developments in the economic, regulatory and supervisory
environment. The priorities, which are reviewed on an annual basis, are an essential
tool for coordinating supervisory actions across banks in an appropriately
harmonised, proportionate and efficient way, thereby contributing to a level playing
field and a stronger supervisory impact (see Figure 1).
1.1.2 General performance of significant banks in 2016
Profits of significant institutions in
the euro area remained stable
5.8%
Return on equity in 2016
The results of the first three quarters of 2016 show that the profitability of significant
institutions remained stable in 2016 4 . The average annualised return on equity for a
representative sample of 101 significant institutions stood at 5.8% in the third quarter
of 2016, slightly decreasing year on year (6.0% in the third quarter of 2015) 5 .
However, it should be noted that, behind these aggregate figures, we observe a
great variety of developments.
Recurring revenues contracted in 2016: the aggregate net interest income of
significant institutions decreased by 3%, despite a slight increase in loans (+0.5%
year on year), particularly in corporate loan volumes (+2.8%). The decrease was
concentrated in the first quarter of 2016. Thereafter, interest revenues stabilised. Fee
income also decreased (-2.8% year on year), largely reflecting a decline in
commissions from asset management and capital markets activities during the first
three quarters of 2016. The trend may have been reversed in the fourth quarter of
2016 as capital markets activities picked up again.
3
4
5
See also Section 1.2.1.
In this section, data for 2016 refer to the third quarter of 2016.
Aggregate return on equity stood at 4.8% in the fourth quarter of 2015. On an annualised basis, fourthquarter
figures tend to be lower than third-quarter figures owing to seasonality in some of the
underlying items.
<strong>ECB</strong> <strong>Annual</strong> <strong>Report</strong> on supervisory activities 2016 − Supervisory contribution to financial
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