The Supervisory Review and Evaluation Process in 2017

The goal of the Supervisory Review and Evaluation Process (SREP) is to promote a resilient banking system as a prerequisite for a sustainable and sound financing of the economy.

2017 SREP methodology booklet

Capital requirements

Overall, the amount of Common Equity Tier 1 (CET1) capital that directly supervised banks are expected to hold, as determined by the SREP, will be broadly stable from 2017 to 2018. It remains at an average of around 10% of total risk-weighted assets. However, the amount varies between individual banks, with some needing to hold additional capital and others needing to hold less.

  • The SREP 2017 highlighted continued challenges for banks in terms of profitability and capital adequacy. Despite the fact that ratios of non-performing loans declined over the last year, the number of banks with high ratios of NPLs in the euro area remains substantial. In addition, the continued period of low interest rates puts pressure on interest rate margins, which affects banks’ profitability.
  • The SREP 2017 also found that many banks still face challenges in terms of risk management, particularly in the areas of risk infrastructure, data aggregation and reporting.

During the SREP, the supervisor not only defines banks’ capital requirements, but may also decide to impose additional measures on banks, including liquidity and qualitative measures.