The EU subsidiaries of third country players account for 10% of total EU assets. Their presence is more significant in the derivatives market, the EBA Report finds

The European Banking Authority (EBA) today published two Reports on the market share of subsidiaries of non-EU banks in the EU, as well as on EU banks’ assets and liabilities in foreign currencies. The market share of EU subsidiaries of third country banking groups amounts to 10.17% of total assets as of December 2023, mostly owing to exposures towards credit institutions and other financial corporations in the EU. Of the individual asset categories, the market share of third country players is highest in derivatives while their largest sources of income are fees and commission income and interest income from credit institutions and other financial corporations.

As of December 2023, the market share of third country players was 10.17% of total assets, and accounted for 33.73% in derivatives, 8.17% in loans and 6.06% in debt securities. More than 70% of loans and derivatives were granted to counterparties domiciled outside the home country. The market share of third country players mostly owed to exposures towards credit institutions and other financial corporations in the EU, amounting to 30.79% and 22.44% of total assets of all counterparties, respectively.

As of December 2023, the assets reported by subsidiaries of third country banking groups towards credit institutions and other financial corporations accounted for 78% of total assets. Moreover, 80% of these assets were located outside of the country where the subsidiaries were domiciled.

In relation to the P&L items, the market share of subsidiaries of third country banking groups represented 5.16% of interest income, 1.85% of dividend income, 12.22% of fee and commission income and 32.28% of other operating income. Subsidiaries of third country banking groups enjoyed a high market share on fee income originating from commodities (77.34%), fiduciary transactions (48.74%), central bank administrative services for collective investment (30.57%), corporate finance (30.19%), custody (25.68%) and foreign exchange (19.73%).

Finally, in terms of the assets involved in the services provided, the market share of subsidiaries of third country banking groups is high in central administrative services for collective investment (53.11%), fiduciary transactions (28.87%) and custody assets (20.55%).

The Reports also show that EU/EEA banks hold nearly 30% of their exposures in foreign currencies, while they receive 21% of total funding in foreign currencies (without including foreign subsidiaries of EU banks). Foreign currency funding consists of funding in Euro (4% of total funding), other EEA currencies (1.9% of total funding) and other foreign currencies (14.7% of total funding). The US dollar is the main contributor to funding in other foreign currencies (12% of total funding).

On wholesale funding, EU/EEA banks mainly tap markets of foreign currency funding. Unsecured wholesale funding represents two thirds of total foreign currency funding, followed by repurchase agreements (13% of foreign currency funding). More than half of unsecured wholesale funding in foreign currencies comes from financial customers, while non-financial customers provide less than a third of unsecured wholesale funding in foreign currencies.

On net stable funding ratio (NSFR), EU banks’ buffers remain comfortably above the minimum requirement both for the total NSFR ratio and for the NSFR in the main significant currencies. The average foreign currency NSFR is below 100% only for Norwegian krone and Japanese yen. The average NSFR in USD stood at 107.2% as of December 2023,  higher than the level observed in June 2021 (83%). However, the NSFR in USD remains below 100% for 60 banks out of the 267 banks reporting USD as a significant currency.

Note to the editors

1. The identification of non-EU entities and operators was made based on the country of domicile of the ultimate parent.
2. The EBA relied on different data sources to carry out the analyses included in the Report. The analysis on funding structure and assets and liabilities in foreign currency is based on EBA supervisory reporting data. The investigation of the market share relies mainly on FINREP templates, available at the EBA for banking groups (i.e. institutions that report on a consolidated basis). However, only a limited number of subsidiaries of third country banking groups have established a banking group in the EU and report on a consolidated basis, while the majority of the subsidiaries operate on a solo basis and report FINREP individual templates.