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Report on EU banking structures

7 October 2005

The European Central Bank (ECB) has today published a report on EU banking structures, prepared by the Banking Supervision Committee of the European System of Central Banks (ESCB). The Committee comprises of representatives of the national central banks and banking supervisory authorities of the EU and the ECB. Such a report has been published annually since 2002.

The report reviews the main structural developments in the EU banking sector in 2004 and, where possible, in the first half of 2005. It also contains four short topical studies of syndicated lending, competition in EU mortgage lending markets, the structure of EU consumer credit markets and the internationalisation strategies of a sample of large EU banks.

The most important structural developments that took place in the EU banking sector in 2004 and the first half of 2005 are as follows. Whereas the pace of consolidation has declined steadily since the end of 2002, there are some indications of a possible revival of enthusiasm for large cross-border deals. Banking profits have increasingly been generated by retail activities. At the same time, cross-border integration has progressed through the cross-border provision of financial services, albeit mainly in the wholesale and interbank markets. There is also increasing evidence of a change in funding structures, with on-balance-sheet and off-balance-sheet lending growing faster than deposits. EU banks also appear to be transferring more risks to other sectors in the economy, instead of purely mediating between lenders and borrowers. In this respect, the role of banks seems to be changing gradually, moving away from the integrated provision of financial services towards a greater focus on core activities. Banks are also increasingly adopting more flexible types of organisation. All in all, there are still significant differences between the structures of banking sectors across EU countries. However, these differences are expected to gradually diminish both as a consequence of the trends identified above and as a result of the increasing importance that banks have been attaching to the creation of shareholder value. In the long-term, this might affect EU banks’ performance and risk-return trade-offs, possibly having a bearing on the capacity of banks to absorb shocks.

The analysis of syndicated lending shows that this activity has grown significantly over the last two decades. It has become an important source of international funding for large companies and also accounts for a significant proportion of total lending by large EU banks. In addition to allowing banks to share credit risk, syndications also enable them to diversify portfolios both geographically and across sectors and types of activity. The largest EU borrowing sectors and the degree of concentration in the banking industry are analysed in some detail. The study suggests that banks may be taking on more risks through the syndicated lending business since the proportion of leveraged loans granted has increased remarkably over the past decade. For a complete assessment of the likely impact of this development on financial stability, however, more information would be required, especially on pricing, on the secondary loan market – where institutional investors are becoming important players – and on the extent to which banks are hedging their positions.

The study on competitive conditions in EU mortgage lending markets provides an overview of current competitive conditions in the EU mortgage markets and their evolution over the past five to ten years. The different indicators provide evidence that EU mortgage markets are broadly competitive at the national level, but that cross-border competition has been limited as a result of cultural and legal barriers. A further factor limiting foreign presence in this market has been a lack of profit opportunities stemming from strong domestic competition. To the extent that the intensity of competition at the domestic level has led to easier access to credit – reflected by a lowering of standards for the assessment of credit risk, a reduction of lending margins and accompanied by a greater exposure to housing markets where prices may have departed from intrinsic values – some developments in mortgage markets may pose risks to financial stability.

The study on consumer lending markets documents the rapid growth of lending and the range of services offered over the past ten years. The range of products and providers has expanded significantly and funding appears to have shifted towards capital market instruments. True cross-border provision of consumer credit is found to be limited, but may develop over time, owing to some regulatory changes at the EU level. If this takes place, it is expected to be to the benefit of consumers. However, natural barriers such as language and cultural differences may still continue to support the importance of proximity and local presence. As with mortgage lending, intense competition in this market segment could raise concerns about financial stability if margins were to be eroded or if standards for credit risk assessment were lowered significantly.

The last study examines, for a sample of large internationally active EU banking groups, the motives behind their geographical diversification as well as their main features. The analysis indicates that these banks have a better capitalisation, stronger performance and carry less risk than their domestic counterparts. Within the sample of large banks studied, size seems relevant in explaining their degree of foreign presence. Furthermore, the extent of their foreign presence is associated with several country and banking sector-specific characteristics. In particular, higher profitability, higher capital buffers and a higher concentration are all associated with a greater foreign presence. However, the statistical correlation established by these findings does not ascertain a causal relationship between these factors.

Further information

The report can be downloaded from the “Publications” section of the ECB’s website ( Printed copies are also available free of charge from the ECB’s Press and Information Division at the address given below.


European Central Bank

Directorate General Communications

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