The Supervisory Review and Evaluation Process in 2019

SREP CET1 requirements and guidance (excluding systemic buffers and countercyclical buffer) for the 2019 cycle are stable overall at around 10.6% compared to the 2018 cycle.

Business model remains a key supervisory focus with supervisors highlighting banks’ business model sustainability as a key risk area of the SREP 2019.

Governance remains a risk area of particular supervisory concern due to deteriorating scores driven by limited effectiveness of management bodies, weaknesses in internal controls, poor data aggregation capabilities and weak outsourcing arrangements.

When the ECB assumed its supervisory responsibilities five years ago, non-performing loans (NPL) stood at around €1 trillion (8% NPL ratio). By the end of September 2019, the volume of NPL held by significant institutions had been reduced to €543 billion (3.4% NPL ratio).

Operational risk driven by specific one-off losses and increased IT/cyber risk for a number of significant institutions represents a key area of ongoing focus for supervisors.

Overall, the two key risk management processes for capital and liquidity – ICAAPs and ILAAPs – show significant need for improvements, also in light of their role in the SREP which will increase in the future.