Fitch: European Banks Now Smaller Share of G-SIB List
OREANDA-NEWS. Since the Financial Stability Board (FSB) removed BBVA from its list of global systemically important banks (G-SIB), European banks make up only half of the total 30 G-SIBs. This reflects the continued retrenchment and deleveraging at some of Europe's largest banks and a rise in Asian-focused names, says Fitch Ratings. Dexia, Commerzbank and Lloyds have dropped off the list of since it was first published in 2011 and Royal Bank of Scotland moved to a lower bucket in 2015, highlighting its diminished global importance. It has to hold less loss-absorbing capital as a result.
One new Chinese name has been added to the list each year since 2013, the latest being China Construction Bank. There are now four Chinese G-SIBs, three Japanese and two Asian-focused institutions - HSBC and Standard Chartered - representing 30% of total G-SIB names.
A higher number of Asian-focused names on the list is in line with recent Asian economic growth. We still expect GDP performance in Asia - where we forecast 3.1% growth in 2015, rising to 4.2% in 2017 - to outpace Western Europe and North America, which we expect to reach 1.5% GDP growth in 2015, rising to 2% in 2017. Notwithstanding the recent slowdown, Chinese growth has been far stronger than the Asian average and Fitch expects this to continue. Nevertheless, we do not expect to see many new Chinese names on the G-SIB list in future because all obvious candidates are already included. New names might emerge if mergers and acquisitions take place.
European names might continue to fade away from the G-SIB list. We expect the smaller, more domestic, less complex retail-focused banks to come off more quickly. These might include Royal Bank of Scotland whose core business is now UK retail and commercial banking and Groupe BPCE, which is dominated by French retail and SME lending.
At the other end of the spectrum, we do not think HSBC's place at the top of the list is likely to be challenged. It shares its position with JP Morgan Chase, meaning that these two banks face the toughest capital requirements. In view of their global importance, they must hold 2.5% additional common equity, loss-absorbing capital as a percentage of risk weighted assets.
Many of Europe's G-SIBs are reviewing their business models. Barclays, Deutsche Bank, Credit Suisse, Credit Agricole, Santander, Standard Chartered and Unicredit have changed their chief executive officers or chief financial officers during the past two years and strategic overhauls have been announced by many of these banks. Management at HSBC has been stable but the bank's business model has been refocused. Cutting back on balance sheet-heavy businesses is a common theme, as is an exit from non-strategic or high risk markets.
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