Bank funding:

How indebted are global banks?

Irakli Pipia
Director – senior research analyst, Moody’s Analytics

Welcome to the business of certainty

 Agenda

• Review liquidity ratios of selected global peers

• Analyse wholesale funding and leverage ratios for the same peer
group

• Compare the peer ranking based on these two factors

• Concluding remarks

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 Analyzing liquidity – main points:

• The sample group: 80 largest banks globally – the USA (US),

Europe (EU), China (CN) and Emerging markets (EM)

• Funding and liquidity improved for most of the global peers

• However, trends are distinctly different in selected regions

• Ranking is different based on liquidity vs. funding ratios

• Bank indebtedness remains a key issue in the EU and CN

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 Funding and liquidity trends

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 Deposits are main source of funding
Gross loans & advances to customer vs. Customer Deposits

160%

140%

120%

100%

80%

60%

40%
2011 2012 2013 2014 2015 2016 2017 2018 H1 2019
EU USA CN EM

• Loan-to-deposit ratios (LtD) indicate adequate customer deposit reliance

• CN and US banks – fully funded by customer deposits, however there is a catch
• EU banks – improved their LtD ratios but not sufficient to cover gross loans
• EM banks – break-even LtD but there is a wide variation in the peer group

5 Source: Moody’s Analytics BankFocus

 Net interbank position
Interbank assets / Interbank liabilities

160%
140%
120%
100%
80%
60%
40%
20%
0%
2011 2012 2013 2014 2015 2016 2017 2018 H1 2019
EU CN EM

• CN and EU banks – net borrowers in interbank market and heavy reliance on central
banks
• EM banks – on average balance their position, but peers differ significantly
• US banks – do not report bank deposits which overestimates their LtD ratios and
underestimates their wholesale funding reliance

6 Source: Moody’s Analytics BankFocus

 Liquid asset ratios improved

Liquid assets / Total assets

35%
30%
25%
20%
15%
10%
5%
0%
2011 2012 2013 2014 2015 2016 2017 2018 H1 2019
EU USA CN EM

• Overall view – leading banks are accumulating liquid assets globally

• EU banks – liquid assets are at the highest and improved since 2016
• EM banks – better than average ratios but maturity and FX risk are higher
• US and CN banks – similar latest ratios but below the peer average

7 Source: Moody’s Analytics BankFocus

 Diverse coverage of short-term funding
Liquid assets / Deposits & short-term funding*

60%

50%

40%

30%

20%

10%

0%
2011 2012 2013 2014 2015 2016 2017 2018 H1 2019
EU USA CN EM

• Similar trends and ranking as for the liquid asset ratios

• EU banks – improved coverage ratios, aided by liquid assets
• US banks – steady but lower ranking, with interbank deposits included
• CN banks – the weakest given larger deposit base and inclusion of interbank liabilities
*CN ratio calculated as Liquid assets vs. Interbank Liabilities

8 Source: Moody’s Analytics BankFocus

 Wholesale and Debt-to-equity
ratios

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 Wholesale funding is highest in EU

Wholesale funding / Total funding

50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
2011 2012 2013 2014 2015 2016 2017 2018 H1 2019
EU USA CN EM

• US banks – lowest dependency on wholesale funding, bank deposits excluded

• EM banks – improving trend influenced by Brazilian and Russian slowdown
• CN banks – managed to trim down the growing dependence, but still high
• EU banks – despite some decline, highly dependent on wholesale funding

10 Source: Moody’s Analytics BankFocus

 Leverage is high in EU and CN
Wholesale funding / Total Equity

800%
700%
600%
500%
400%
300%
200%
100%
0%
2011 2012 2013 2014 2015 2016 2017 2018 H1 2019
EU USA CN EM

• US banks – stable debt-to-equity ratios despite recent buy-backs and high dividend
pay-outs
• EM banks – improved their leverage but their liabilities tend to be shorter-term
• CN banks – still high leverage, peaked in 2016
• EU banks – most indebted banks among the peers which is unlikely to change

11 Source: Moody’s Analytics BankFocus

 LCR does not convey the same picture
Liquidity Coverage Ratios (LCRs)

200%
180%
160%
140%
120%
100%
80%
60%
40%
20%
0%
Brazil Turkey EU CN EM US

2017 2018 H1 2019

• Broadly similar level of LCRs among the peers despite discrepancies

• US banks – the lowest ranking despite strong leverage and customer deposit base
• EU banks – the highest LCRs despite high indebtedness and wholesale reliance

12 Source: Moody’s Analytics BankFocus

 Concluding remarks

• LtD ratios improved globally - US banks appear to have fully funded loan
books

• However, the US LtD ratios overestimate customer funding availability

• EU banks show strongest liquid asset ratios to mitigate higher indebtedness

• EM banks improved their liquidity and funding ratios but FX and maturity
risk is not accounted for, as well as diversity among the peers

• Finally, the Chinese banks are in a weaker position based on the

combination of funding and liquidity ratios in the global peer group

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irakli.pipia@moodys.com | bvdinfo.com
 Appendix I: List of EU, US, CN and EM banks analyzed
Europe
• Austria: Erste Group Bank AG, Raiffeisen Bank International AG
• Belgium: KBC Groep NV / KBC Groupe SA
• Denmark: Danske Bank A/S
• France: BNP Paribas SA, Credit Agricole, BPCE Group, Societe Generale SA
• Germany: Commerzbank AG, Deutsche Bank AG
• Italy: UniCredit SpA, Intesa Sanpaolo
• Netherlands: ING Groep NV
• Spain: Banco Santander SA, Banco Bilbao Vizcaya Argentaria SA, Caixabank, S.A., Banco de Sabadell SA,
• Sweden: Svenska Handelsbanken AB, Skandinaviska Enskilda Banken AB
• UK: Barclays Plc, HSBC Holdings Plc, Lloyds Banking Group Plc, Royal Bank of Scotland Group Plc (The)

USA: Bank of America Corporation, BB&T Corporation, Capital One Financial Corporation, Citigroup Inc, JPMorgan Chase &
Co, PNC Financial Services Group Inc, SunTrust Banks, Inc., US Bancorp, Wells Fargo & Company

China: Industrial & Commercial Bank of China (The) - ICBC, China Construction Bank Corporation Joint Stock Company,
Agricultural Bank of China Limited, Bank of China Limited, China Merchants Bank Co Ltd, Bank of Communications Co. Ltd,
Shanghai Pudong Development Bank, China CITIC Bank Corporation Limited, Industrial Bank Co Ltd, China Minsheng Banking
Corporation, Hua Xia Bank co., Limited, Bank of Beijing Co Ltd, Bank of Ningbo, Bank of Nanjing

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Appendix I: List of EU, US, CN and EM banks analyzed
EM
• Brasil: Banco do Brasil S.A., Itau Unibanco Holdings SA, Banco Bradesco SA, Caixa Economica Federal, Banco Santander
(Brasil) S.A.;
• India: State Bank of India, Bank of Baroda, Punjab National Bank, Canara Bank, Bank of India, Union Bank of India, HDFC
Bank Ltd, ICICI Bank Limited, AXIS Bank Limited;
• Russian Federation: Sberbank of Russia OAO, VTB Bank (public joint-stock company), Gazprombank Open Joint-Stock
Company, Joint Stock Company Alfa-Bank, Russian Agricultural Bank OJSC, Public Joint-Stock Company 'Bank Otkritie
Financial Corporation', Credit Bank of Moscow;
• South Africa: Standard Bank Group Limited, FirstRand Limited, Absa Group Limited, Nedbank Group Limited
• Turkey: T.C. Ziraat Bankasi A.S., Turkiye Halk Bankasi A.S., Turkiye Garanti Bankasi A.S., Akbank T.A.S., Turkiye is
Bankasi A.S. – ISBANK, Turkiye Vakiflar Bankasi TAO, Yapi Ve Kredi Bankasi A.S..

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Appendix II: Ratios definition
• Gross loans & advances to customers defined as gross of Mortgage loans, Consumer loans, Corporate loans and Other
loans.

• Customer deposits include demand deposits, savings deposits, time deposits and other customer deposits.

• Interbank liabilities defined as the sum of: Bank deposits; Repurchase agreements, securities loaned, cash collateral

• Liquid assets defined as the sum of: Cash and balances with central banks; Net Loans and advances to banks; Financial
assets: trading and at fair value through P&L; Reverse repos, securities borrowed & cash collateral; Financial assets at fair
value through other comprehensive income (FVOCI); Mandatory reserve deposits with central banks;

• Deposits & short-term funding defined as the sum of: Customer deposits; Bank deposits; Other wholesale deposits; Short-
term borrowings and debt securities at historical cost < 1 year; Repurchase agreements, securities loaned, cash collateral;

• Wholesale funds defined as the sum of: Bank deposits; Other wholesale deposits; Short term borrowing and debt securities
at historical cost < 1 year; Long-term borrowings and debt securities at historical cost < 1 year; Financial liabilities at fair
value through P&L; Other long-term borrowing, Repurchase agreements, securities loaned, cash collateral; Subordinated
liabilities; Preference shares accounted as debt.

• Total Equity defined as Sum of Shareholders' equity and Non-controlling interests.

• LCR ratio reflects the banks’ adequate stock of unencumbered high-quality liquid assets (HQLA) that can be converted
easily and immediately in private markets into cash to meet the banks’ liquidity needs for a 30 calendar day liquidity stress
scenario.

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