ECB Annual Report on supervisory activities

The IT risk methodology was also revised to reflect new supervisory priorities
related to IT risk, such as cyber risk and data quality. It also reflects the Basel
Committee on Banking Supervision (BCBS) 239 Principles for effective risk data
aggregation and risk reporting in conjunction with the associated thematic review.
Two specific issues are being addressed through two separate methodology working
groups: (i) a horizontal review of shipping portfolios to analyse and compare the
quality of these portfolios and the risk management approaches of the most relevant
significant institutions, and (ii) the strengthening of the IT risk assessment
methodology so as to further develop the best supervisory practices, in particular
regarding cyber risk.
Finally, a guide to on-site inspections is under preparation, which will explain how onsite
inspections are conducted and will provide a useful reference document for
banks subject to such missions.
1.2.5 Work on thematic reviews
Business models and profitability drivers
In 2016 European banking supervision launched a thematic review for the in-depth
assessment of the business models and profitability drivers of most significant
institutions.
Banks’ business models and
profitability drivers remain a key
priority for European banking
supervision
Banks’ business models and profitability drivers are a key priority for European
banking supervision. Profitable banks can generate capital organically and thus
maintain adequate buffers, while maintaining a reasonable risk appetite, and lending
to the real economy. However, in the current environment, euro area banks’
profitability is not only challenged by low interest rates and continued high
impairment flows (see Section 1.1). It is also challenged by structural factors, such
as overcapacity in some markets, tougher competition from non-banks, increasing
customer demand for digital services as well as new regulatory requirements.
The thematic review addresses banks’ profitability drivers both at firm level and
across business models. Spanning two years, the review has several objectives.
Besides assessing banks’ ability to mitigate weaknesses in their business models, it
will monitor how weak profitability impacts on banks’ behaviour and it will enrich
horizontal analysis, in particular by pooling the insights gained by the JSTs and
harmonising their follow-up across banks.
In the first year of the thematic review, European banking supervision’s toolkit for the
assessment of banks’ business models and profitability has been enriched in several
ways. The business model classification of significant institutions was improved to
facilitate peer comparison among individual banks. The classification complements
other benchmarking criteria such as firm size, risk rating or geography. In addition,
several dedicated benchmarking tools have been developed to support JSTs in
assessing their banks’ profitability.
<strong>ECB</strong> <strong>Annual</strong> <strong>Report</strong> on supervisory activities 2016 − Supervisory contribution to financial
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