AQR – What do selectors and managers expect?

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The ECB has conducted the Asset Quality Review (AQR), aiming to enhance the transparency of bank exposures, including the adequacy of asset and collateral valuation and related provisions; and a stress test, which seeks to examine the resilience of banks’ balance sheets to stress scenarios, performed in cooperation with the European Banking Authority (EBA).

About 82% of bank assets in the euro area are affected by the regulatory activity through which the ECB has set out three key aims: ‘transparency’ to enhance the quality of information available on the condition of banks; ‘repair’ to identify the problems and implement corrective actions; and ‘confidence building’ to assure all stakeholders that banks are fundamentally sound and trustworthy.

The initiative has quite predictably put pressure on many of the eurozone banks. But they have also been preparing for the assessment,
and for this reason, many of the industry players approached by InvestmentEurope do not expect great surprises from the results.

Many place a significant amount of trust in the action to restore transparency, bring back efficiency and improve investor trust in the eurozone banking system altogether.

Vincent Papa, director of financial reporting policy at CFA warns that the AQR should not be seen as a panacea, and investors who do so may risk disappointment.

However, he does anticipate progress: “An important aspect of the AQR is the prospect of consistent standards across the eurozone. At the moment there is a lot of scope for subjectivity, for example when it comes to defining an NPL (nonperforming loan). Consistency is what matters in order to create confidence among investors.”

“The scope of what they are going to do is hard to judge, looking at it from the point of view of financial statements, I would like to know if the results will be clearly laid out to investors. Will it be visible for them to see the state of the capital determinants for a particular bank? I’m not sure it will be as transparent as it needs to be,” he says.

Jonathan Boyd
Editorial Director of Open Door Media Publishing Ltd, and Editor of InvestmentEurope. Jonathan has over two decades of media experience in Japan, Australia, Canada and the UK. Over the past 17 years he has been based in London writing about funds and investments. From editing the newsletter of the Swedish Chamber of Commerce in Japan in the 1990s he now focuses on Nordic markets for InvestmentEurope. Jonathan was awarded Editor of the Year at the Professional Publishers Association (PPA) Independent Publisher Awards 2017. Shortlisted for the same in 2016, he was also shortlisted in 2017 and 2015 for the broader PPA Awards category Editor of the Year (Business Media).

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