 Welcome to our press conference on the 2019 Shrep Results and with our chair, Andrea-Ann Ria. Without any further ado, I will hand over to him to take the floor. Thank you very much, Connie, and welcome to all of you to our press conference on the supervisory review and evaluation process, the ZREP, which is our main supervisory tool. The ZREP allows us to spot weaknesses in the banks and take measures to address them through capital addons, such as the Peter II requirements and guidance, as well as through qualitative measures. The ZREP is a well-established tool. We have been using it since ever European Banking supervision was established. Yet so far, we have only published broad aggregate outcomes, but today, as part of our ongoing drive to achieve greater transparency, we are publishing more granular results, more details on the ZREP methodology, and the list of individual banks pillar to requirements, or P2R. The outcome of the ZREP cycle, the 2019 ZREP cycle, whether in the form of capital addons or qualitative measures, applies to the banks in 2020. In this presentation, I will focus on four main points. First, the higher level of transparency as an important objective of the CB supervision. Second, the stabilization of the supervisory requirements set by the ECB. Third, the areas of supervisory concerns in the ZREP 2019, in particular, internal governance and operational risk and profitability and business model sustainability. And finally, the progress achieved in the risk reduction agenda, so in the improved asset quality, the reduction of non-performing laws. Let me start with transparency. For the first time ever, we are publishing individual pillar to requirements, and we are very pleased that 108 out of the 109 banks we examine in the ZREP cycle have consented to have their P2R published on our website. One year earlier, by the revised capital requirements regulation. Let me give you maybe a little bit of explanations here. This does not cover the full set of 117 banks, significant institutions under our direct supervision. Besides the bank that didn't consent to publication, we also have other eight banks for which the pillar two are not available because either the banks became significant throughout 2019, for instance, these covers banks that relocated business to the euro area as a result of Brexit like JPMorgan, Goldman Sachs, UBS and others. Or because the ZREP decision has been postponed. And this is the case, for instance, for Nordel Bay or Carigge, for which there was a significant capital increase in the last days of last year. The publication of individual ZREP outcomes will shed more light on the state of European banks. We should help banks to compare their own position with that of their peers and allow investors to take more informed decisions. Hopefully, the enhanced disclosure by CB Supervision will also allow market participants to better understand what we do. Say, our work, our methodologies and make our actions more predictable. Let's now look at the actual results. Starting with a big picture, the Common Equity Tier 1 capital, CET1 requirements and guidance remain stable at 10.6% as the previous year. This confirms the stabilization, the supervisory assessment of banks' capital needs. I want to stress this point because sometimes out there there is this narrative that supervisory requirements are stabilizing in all other jurisdictions, in the US, in the UK, in East Asia, while they keep going up and up in the Euro area. And the evidence we presented showed that this is not the case. The fact that we have, on average, stable requirements doesn't mean that the individual outcomes are the same. They vary indeed, reflecting changes in the underlying risk profile of the banks. And the overall requirements and guidance change, for instance, in one every three banks, going up in 15% of cases and down in another 15%. On average, P2R is higher as the score worsens. On a scale of one to four, the higher the score, the riskier the banks, and the higher the capital add-ons. And you have a lot of details in our methodology booklet published today on how the scores are prepared and calculated. Looking at business models, it is the first time also we give a breakdown of the results by business models. Globally, systemically important banks, the G-SIBs, phase slow and the universal banks, phase lower pillar two guidance, P2G, reflecting higher resilience in stress test exercises. The P2G is the component that basically reflects the stressed conditions. In terms of overall CT1 requirements, including also the systemic buffers, G-SIBs are at a comparable level to that of banks with other business models. So basically, when you look also at the systemic footprint at the potential impact of the problems at banks, let's say the buffers that cover for that compensate for the lower buffers under the pillar two guidance. The upcoming revision of the European Banking Regulation will allow banks to fulfill pillar two requirements partly with capital of lower quality than common equity tier one than CT1. According to our calculations from 2021 onwards, so not for this year, CT1 requirements will thus fall by around 90 basis points as a consequence of this report. This is not something that we supported when the, let's say, when the legislative debates were ongoing because we always thought it would have been better to fulfill the pillar two requirements with a higher quality of capital that is able to absorb losses in only going concern basis, but that has been the decision of the legislators, so we will fully abide with it. Almost all banks have adequate level of capital in excess of all requirements, including the systemic and counter-seqial buffers. At the end of the third quarter of 19, that's important, so the latest capital figure that we have, so September 2019, six banks at capital levels below the pillar two guidance set for 2020. In four cases, that shortfall had already been remedied by the end of 2019. The two remaining banks have been requested to take remedial actions within a well-defined timeline. Capital requirements and guidance are not the only outcome of this rep. As I already mentioned, there are also qualitative measures, very important to us, or in other words, actions that banks are asked to take in order to fix issues that we have identified in this rep process. All together, 91 banks received qualitative measures in the 2019 rep, only slightly more than in 2018, and the distribution of qualitative measures shows that supervisory concerns are particularly focused on the area of internal governance. Almost a third of all remedial actions to be taken by banks relate to their governance. Indeed, the rep scores for internal governance worsened across all business models, continue a trend seen already in previous years. Three out of four banks, 76%, up from 67% in 2018, scored three, so medium high risk. Only 18% of banks achieved a score of two down from 25% in 2018. Being a bit deeper, qualitative measures aim to address severe weaknesses in the internal control functions of banks, lack of effectiveness in their management bodies, and deficiencies in their risk management, including sound risk data aggregation capabilities. And that's a point that surprised me, I must say, in my first year at the ECB, how many of the findings also in our inspections deal with data issues, data quality issues, data aggregation capabilities, that's an area which is sometimes a little stressed of greater problems in the banks. Moreover, remuneration schemes are often designed in a way that places too much weight on short-term profitability and not enough weight on long-term sustainability. Finally, controls and procedures regarding anti-money laundering are still insufficient. In short, we are particularly concerned about governance, and weak governance can be the source of many other issues in a bank. Take operational risk as an example, the outcome of this rep in these areas worse than last year, and most operational losses stem from the materialization or conduct risk, which can often be traced back to governance issues. The deterioration of scores for operational risks also reflect the fact that IT and cyber risks have increased for a number of banks. Thus in 2020, we'll maintain a heightened focus on such risks by carrying out on-site inspections dedicated to IT. In addition, the harmonized cyber incident reporting framework will increase our knowledge about cybersecurity breaches, clearly an area that banks need to work on. Another prominent area of supervisory concern is the low level of profitability of European banks. Many of them do not earn their cost of capital, as is shown in this chart. Cost of capital even measured according to banks own estimates, which in our view are a little bit optimistic. And this is reflected, of course, in low valuations, low price to books for European banks. From a supervisory perspective, this means low organic generation of capital and lower capacity to raise equity in markets under challenging economic conditions. So that cannot be good also from a supervisory perspective. Banks tend to blame the lack of profitability on external conditions, pointing to negative interest rate policies, stringent regulatory requirements, tougher competition including from fintech companies and sluggish growth in the Euro area. And all this is true. It is undeniable that the environment in which banks operate is challenging, but this is not going to change in the short term. So banks need to sharpen their managerial efforts to refocus their business model, deploy effective strategies on digitalization and achieve more radical improvements in cost efficiency. I believe that consolidation could also prove helpful in achieving these goals. There is still a lot of excess capacity in the European banking sector, one of the legacy of the crisis still. This is why one of our priorities this year is to assess banks' future resilience and sustainability of their business models. And we may well consider stepping up supervisory pressure if banks' self-help measures are not effective enough. Let me now move to the last point on asset quality. Progress continues to be made in the post-crisis cleaning of banks balance sheets when the ECB took over banking supervision in 2014, non-performing loans and PLs in the euro area stood at around 1 trillion euros, 8% of total loans. Since then we have taken various measures and the banks have put a lot of work into bringing down NPLs. And these efforts have been successful. Since 2014, the volume of NPLs has shrunk by almost half to 540 billion and the NPL ratio has fallen to 3.4%. Looking ahead, the volume of NPLs is expected to decrease further in line with the targets bank have agreed with their supervisors. When we look at the strategies, high NPL banks, let's say the banks with high NPLs, we see that's why what also explains the difference in the figures. You see we have 543 billion outstanding non-performing loans. The 279 billion that you see on the right hand side of the chart is are the non-performing loans at high NPL banks for which we asked specific strategies to be in place. And we see that they are bringing down, they plan to bring down their NPLs by another 35% over the next two years. And what is more important is that these plan reductions targets in particular very old vintages of NPLs, which tend to be the most difficult to cure or dispose of. So banks are on the right track when it comes to asset quality, but as rep decisions recommend that banks with high NPLs maintain a strong focus on achieving their targets and continue improving their risk profile. It is crucial that banks balance sheets are cleaned up before the next recession yields. In order to prevent future builds up, banks will have to pay close attention to their crate underwriting standards. The ECB is currently reviewing market practices in this area and will soon come up with findings or our preliminary findings of this very important strand of work. Regarding risk to liquidity, overall score showed that banks have good liquidity position. 76% of the banks have a score of two, 70% up from 70% in 2018 and four banks scored one, down from 12 in 2018. This is also in line with the good results of the liquidity stress test that we published in the last autumn, which was also a main input in this rep process. Many significant institutions have missed their own funding plan targets also due to their changed expectations on monetary conditions. So the condition changed, so it's not something that at the moment, let's say, concerns us that much, although let's say as the EBA also flagged, banks can and should probably step up their ability to set and respect their funding targets. And now I'm looking forward to answering your questions. Thank you. Thank you very much. So can I ask you to wait for that? We're going around the room. We'll start here. And can you please introduce yourself just because we don't do this very often. So I think it's on. Just my name is Sarenza Inirith, Spanish Press Agency. I have two questions. You are talking about a low profitability of the banks. Well, the interest rates are at 0% and a negative area. So in which extent is the ECB also a part of the problem? You introduced a tier system. This system helped to improve the profitability of the banks. Could you quantify how much? And my second question is, can we take conclusions about countries? If we see that the banks in the country have a higher pillar to a percent request, can we take conclusions about the risks of the banks concerning growth in the country or something like that? Thank you. Okay, thank you very much. Well, first of all, the interest rate policy, of course the negative interest rate policy has an impact on bank margins, but it has also positive effects on banks balance sheets. It, of course, with the low interest rates, it's more likely that borrowers pay back their loans and it is easier for banks to let's say manage their and dispose their non-performing loans. So probably the major progress which has been achieved in the area of asset quality would not have been achieved without the monetary policy deployed by the ECB. Also, notwithstanding the compression of margins, there is a positive effect on volumes that needs to be taken into consideration. So the net effect is not easy to quantify. There have been analysis done by the colleagues in the central bank inside that argue that the pros and cons are balanced, but in any case, I mean, it is undeniable that there is a pressure on bank margins. And that's why I focus very much on the need to bank management to give close attention to their business models, to cost efficiency, to investment in technologies. We have seen that banks which have been most effective in investing in new technologies, bringing down the cost to income ratio are also the banks which have achieved the highest level of profit. So banks need to deploy some self-help measures here. And conclusion of countries, again, I mean, we look at banks, we don't look at countries. I mean, the flag that is on the headquarters of the banks is not very relevant issues for us. Of course, there could be specificities in the macroeconomic outlook in some countries that can affect also the banks in those countries, but that's not specifically our focus. So why don't we just go around here, please? In Juno FHZ, you said you will consider stepping up supervisory pressure. What would that be concrete? What would be the pressure you will hold on the banks? As I said, already in this rep process, we have a number of measures. It's clear that we have been already pushing banks to take all issues related to their cost efficiencies and the like, for instance. We might consider, let's say, again, increasing our, if you look at the scores, for instance, in the business model, they're probably still relatively high. So we might reconsider whether these scores are still appropriate, given the inability of the banks to take all issues that we have highlighted to their attention. So these could gradually come more into focus of our supervisory recommendations and our supervisory scores and assessments. We had some in the middle here. Why don't we go to Nicholas Comfort here? Yeah, in the front, and then we go to the back. Thank you. Nicholas Comfort from Bloomberg News. I have two questions. The first is on the P2R disclosures. Super helpful, thank you. Also from us in the press. Now, interestingly enough, I don't want to call them the Brexit banks, but some banks like Barclays, Ulster Bank, there are a couple of names there, who have interesting company, and they're together with Greek banks, Italian banks, and not some Italian banks with height, with more problems. So does that reflect a fundamental risk you see in Brexit banks? And also, was it a question of you want to make sure capital is here because these days the world is splintering apart, you want to make sure there's capital on hand locally, and what does this mean for them for the other Brexit banks coming along as well? And then the other thing is, I mean, this is an incredible sentence you guys had today from the press release. Furthermore, some banks reported material losses which were mostly due to conduct risk events. This is 2020, we still have this. This is, I mean, I was wondering, in the conduct here, are we talking the legacy of litigation that many banks told us was behind them? Are we talking about rogue traders, which again, many banks told us were behind them? What exactly is that there, and how worrying is it that we're still dealing with these issues after the financial crisis? Thank you. Thank you. No, I wouldn't say that we have a specific, I mean, for sure I would rule out most energetically. Let's say that we are, let's say, using the pillar two requirements as a tool to ask banks coming for post-Brexit, relocating post-Brexit to have more capital here because we want to reinference. That's definitely not the point. Let's say the pillar two requirements are set with respect to the specific risk profiles of the banks. So there is not a homogeneous Brexit bank category which deserve a higher capital requirements, not at all. It's a idiosyncratic individual banks and there is no specific, let's say, narrative to be found there. On your point on conduct, yes, you are spot on there. I must say that if you had asked me three years ago a question like that, I would have probably said, yes, there is a pipeline of old misselling, old practices which I've been taken care of through the reform process, the tightening of the supervisory framework. Actually, I see that this pipeline is not drying up. I mean, still very dense. We still see a number of cases. Many of the cases which have been very relevant also in 2019 have a relation to money laundering, for instance, concerns, huge fines raised, for instance, by U.S. authorities. So this is an area in which we are putting quite a lot of attention. Also, from the product, we are not, as you know, a money laundering supervisor, but from the impact that these could have on, let's say, on the banks in terms of stability and also for what is signals in terms of weaknesses in internal controls and governance. Of course, these are areas we are paying a lot of attention to. So let's go in the middle and we'll come to you here in the lady in the third row. Hannah Brenton from Politico. I wanted to ask two questions. Firstly, on leverage loans, I wondered how they've factored into the Shrek process and if any concerns have led directly to capital increases. And secondly, on the two banks that are still not meeting the political guidance, do they face any consequences in the meantime? Well, your first question, the short answer is yes. So not in terms necessarily of the capital impact, but there is, I think that in a number of cases, if I remember well, actually in 25 cases, there have been specific measures which have been taken with reference to leverage loans. We have done specific analysis, specific deep dives in this area, and when we have found weaknesses, we have asked banks to take remedial measures. So this is part of the exercise. On the banks, yes, as I mentioned, yes, in the cases of the two banks which actually have not, let's say, are below the pillar two guidance at the start of the year, there have been specific capital plans which have been asked at the banks with a specific timeline for them to meet. Then there's a question right behind the lady, please. Martin Arnold, Financial Times. Hi, Andrea. Could I ask you to be a bit more specific on the remedial actions that the ECB is requiring banks to take? And secondly, could you talk a bit more about what the ECB can do and the supervisor can do to encourage more consolidation in the sector? The measures in general, let's say, the qualitative measures in general have a wide array of requirements. I mentioned, I focused a bit in my presentation on those which focus on governance because these were the most numerals in our, let's say, in the 2019 cycle. And let's say they are focused in particular, I mean, I mentioned, for instance, internal controls, data aggregation issues, weaknesses in the board. I mean, these are areas in which we ask, bank by bank, very specific remedial measures. If you are referring to the measures on the two banks, I mean, these are capital plans. So if there is a shortfall in terms of the capital position with respect to the pillar two guidance, let me be clear here, is not a hardwired minimum. So banks are allowed to go below that bar if there is a specific circumstance warranting it. I mean, it's a stress requirement, so if the stress materializes for the bank, the bank can delve into the guidance. But in general, we accept the banks to set up a capital plan to reestablish, to replenish, let's say, its levels. The other question was on consolidation. Yeah, on consolidation, again, I mean, consolidation is not up to us to push consolidation. We think there is a good economic rationale for consolidation in terms of there being excess capacity out there. The only point which I could say that we might be helpful is that sometimes I hear out there the perception in markets that the ECB supervision is negative on consolidation, so that whenever we see a deal, we tend to set the bar for capital relatively high and that these discourages banks to even consider the prospects of consolidations. And I've been trying to dispel this concern. And we plan to, let's say, clarify our policies on how we use our powers in this area and we will come out later this year with some clarification. So now we treat bad will, how we look at the capital adequacy of two banks which are merging and the like. So we go to the front here, please. Francesco Canepa Reuters. My question is about Isabel Dushantoush and what's happening right now in Portugal. She's getting out of Eurobic, so that's one thing sorted, but she still has commercial relations with some SSM supervised banks in Portugal. So what are you planning to do about those? Are you gonna tell the banks to cut her off? And the second question is broader, it's still about that. So what are the lessons that you can draw? This woman was allowed to be a shareholder of a bank for many years and so how happy are you about your performance there and what are you gonna change and how happy are you about the Bank of Portugal's performance? So how do you plan not to repeat that mistake, basically? Well, as you should understand, I cannot comment on a specific case, but let me say a few points which I think are relevant in this area. I mean, first of all, fit and proper assessments are not static one-off assessments. So whenever you have new information that comes up, let's say you should be in a position to let's say reassess the status of certain shareholders or managers and reconsider. I mean, that's something that we are doing more and more. For instance, we have started doing board reviews. If you have a specific issue in a bank which is, for instance, subject to money laundering or something like that, we can review. I mean, which members of the board were responsible for these functions? Did they perform well? Did they do a good job? And if not, we can take action there. The second point I want to make, how happy I am, I'm not very happy, to be honest. I'm not very happy not about the performance, ours or Bank of Portugal performance. I'm not very happy about the relative, there is no better term that comes to me, mess, the mess in the legislative setup here. I mean, it's very difficult for us to do fit and proper assessment in a proper way. I mean, there are, this is an area which is one of the least harmonized throughout the union, which means that we have to apply a set of very different local provisions, local implementation of European rules in each member state in the banking union. This means that we can very well come out with assessments in some cases which are not positive, but we cannot act because the local legislation does not give us the tool, let's say, to intervene. And I'm not pleased with that at all, to be honest. Another point which is important to me is that in some countries you have the possibility to do ex-santi-assessments, in other countries you can only do exposed assessments. Also, that is something that we don't like. I mean, basically we would like to have, first of all, a common way of doing the assessments across the board and to have this done ex-santi so that we can provide a filter on who goes in the ownership structure of banks, in the board of banks. So, not very happy. So I think there was, yes, a question by the lady here in the third row, Isabella Bufacchi. Isabella Bufacchi, il sole 24 ore. You said you were surprised when you arrived at the SSM about the internal controls on risk for banks. And they're not adequate enough. Can you give us an idea of what kind of risks that banks stumble on, which are the risks in this particular case for internal controls that are harder for banks to assess? And then, if you can comment on specific banks, but maybe on a country question on non-performing loans, as you're satisfied on an aggregate level, would you say that also Italian banks are you satisfied with what they've done up to now? And I suppose I don't know that there probably are Italian banks in the 32. Thank you. Well, the point I was referring to was specifically on the data side, not on the data quality. And I mean, whenever you're seeing, let's say, results of on-site inspections, for instance, in many cases you have a number of, let's say, very high relevance findings, which are in the area of data quality. And this reflects a number of issues. I mean, just sloppiness, a pure internal organization of data, but also, let's say, in many cases, very old legacy IT systems, end-of-life IT systems, which is a problem at a number of banks across our jurisdiction. And when you don't have enough good data, of course, it's also difficult for the control functions to see what's going on in the banks where our potential risks and to take preventive actions soon enough. So these two points are very strongly related. I mean, we mentioned the point of data aggregation capabilities at banks. I think I sent a letter to the bank last year, I mean, this specific requirement of the Basel Committee, which we find is very poorly implemented by European banks. This means that you're not even able to aggregate the positions across all the establishments. So the subsidiaries, the branches in your group and give a very, very fast and clear understanding how much risk you have in a certain area. I mean, that's something which is unacceptable from a supervisory perspective. For NPLs, as I said, I mean, there is good progress and these concerns, I must say, concerns banks across the board. I wouldn't give a specific connotation. I think Italian banks have done a very significant, I mean, they explained a lot of the decrease in 2019, also because the amount, the stock was quite high, still is, but also banks in other countries were very much in line and sometimes overachieved the targets. So that's something very positive. Any other questions? Yes, here in the middle, please. Can you get a microphone there, please? Michael Rasche, NZZ. You mentioned that a lot of banks, or the majority of banks, don't earn their cost of capital. Isn't this the basis for further travel in the future and what can the ECB do in this area to improve the things? Well, the fact that most banks don't manage to get their cost of capital means also there are a number of banks that do. So there are banks which have been able to actually earn their cost of capital, to have return on equity in double digits, which managed to bring the cost to income ratios, for instance, very low. I mean, we have the cost to income of European banks, which is stuck around 66% since a long while. I mean, it's clear that if you are in this environment, I mean, that's why I mentioned self-help measures. I mean, the external environment in terms of interest rates, in terms of macro-chromic outlook, in terms of competition, is not going to get better in the short term. So banks need really to focus on the levers that they have in their hands. We made a survey a couple of years ago, I think it was on profitability of banks, which showed that the banks that were better in achieving higher profitability were the banks that had a better strategic steer. So again, it's boards, managers that need to understand what drives their profits, refocus their business models in the areas where they can make money, trim down other areas, reduce costs, and achieve greater cost efficiency. And we've seen also that investment in ITs, so the ability to use ITs in an effective way, both in terms of back office, in a sense, and in terms of distribution strategies is also another important lever to consider. Any other questions? I don't know. That one last one here in the front. Andreas Gröner, Handelsblatt. You mentioned consolidation before. Do you have any signs that there is some consolidation to happen? Because in the last couple of years, we haven't seen much of that. And what do you think are the main reasons that there hasn't happened much in terms of consolidation in the last years? Thanks. Well, that's a good question. Well, I mean, there are signals that bank management are considering more, possibly, consolidation strategies. So far, they have not really taken this up. There are two types of consolidation strategies we can consider. Now, one is sort of in-market consolidation, so when you target cost reductions and efficiency increases. So that's where you basically try to have consolidation between banks which have overlapping distribution networks, for instance. And this generally would be domestic type of mergers. We have seen some of them, not many, but we have seen some of them. Maybe not high profile, not catching the headlines, but we have seen some of them. And sometimes we see also some discussions that can bring to further developments in this area. Or you can have more cross-border type of consolidation, so consolidation that target revenue diversification, which is also very positive from us as supervisors, because of course it gives you more ability to diversify risks, which means that if you have an anti-syncratic shock in one country, you would be able to withstand it better because your profits are generated in different markets. This type of consolidation so far has been hampered to a large extent also by, let's say, legislative constraints or policy constraints. So there have been a number of legislative measures, for instance, that have not allowed banks to perform asset and liability management on a cross-border basis, even within the euro area, even where you have a single supervisor, a single resolution authority, a single resolution fund, but still you have differences in which within country asset and liability management is performed and cross-border. So that's the main issue that I think should be addressed going forward. And there have been a number of other impediments. For instance, some national discretions or large exposures that prevent the banks from centralized funding. And then have it operated in an integrated fashion for the group as a whole within the euro area. So this reduces the benefits of diversifying your business cross-border and makes the case for cross-border consolidation more complicated. But I cannot rule out that there are also some business areas in which maybe not for, again, high-profile business combinations, you can still see interesting opportunities for deals. I mean, there are some lines of business which are in which scale is very important, take custody business, investment banking. So in those areas, maybe banks could consider also aggregation projects. So we'll have to wait and see. The only point, as I said before, that I'm keen to make is that, let's say, there is no supervisor impediment at least, no impediment that we want to throw into the way of consolidation from the supervisory side. Of course, we will always ask that banks that want to engage into a consolidation process have a good business plan and have a capital trajectory that is ensuring us that they will always be, let's say, respecting the requirements. Any other questions, last questions? No, I think we've then satisfied all questions. Very good. Thank you very much for coming. And we will close the press conference here. Thank you. Thank you.