AnaCredit A zoom lens at credit and credit risk in the euro area

1. AnaCredit A zoom lens at credit and credit risk in the euro area Riccardo Bonci AnaCredit team ECB - DG-Statistics Div. Monetary & Financial Statistics ECMI Lunchtime Seminar“Removing Information Barriers to Investment in SMEs"Brussels, 8 February 2017 DISCLAIMER: The views and opinions expressed in this presentation are those of the author and do not necessarily represent official policy or position of the ECB.

2. Topics addressed in this presentation ECB-UNRESTRICTEDFINAL • Motivation: why is AnaCredit needed? • Basic features of the project • Main steps achieved and challenges ahead • Potential impact on credit assessment

3. Why is AnaCredit so important for the ECB? ECB-UNRESTRICTEDFINAL • Good policy making is based on reliable and timely data • The financial crisis has shown that there is large heterogeneity in data availability among and within countries and sectors • Aggregated datado not fully cover the new tasks and data needs Just the tip of the iceberg • Urgent need for granular datasets allowing timelyandflexible use to support (unconventional) monetary policy, macro-prudential policy What is underneath the aggregates?

4. AnaCredit usage: concrete examples (1/2) ECB-UNRESTRICTEDFINAL • Better analysis of SMEs’ financing conditions • Detailed and timely information about provision of credit to SMEs: disentangle credit demand and credit supply effects • to possibly complement and cross-check qualitative information obtained via the SAFE survey • Assist the assessment of the effectiveness of various (standard and non-standard) measures to improve SMEs access to credit • e.g. how is the liquidity provided to banks eventually channelled to SMEs? • Enhance monitoring of credit developments at borrower-lender level • e.g. do bank-firm relationships matter for financing conditions?

5. AnaCredit usage: concrete examples (2/2) ECB-UNRESTRICTEDFINAL • The ‘transmission’ of ECB monetary policy • Currently, only broad quantification of policy effects available using aggregate data • e.g. quarterly estimates of loans to NFCs by economic activity and monthly data on (new) ‘small’ loans to NFCs just a proxy for loans to SMEs • Monthly harmonised granular data in AnaCreditwilladdress: • Heterogeneity of loans data collected and estimations • Lack of loans data by size of enterprises • Accurate classification of loans by sector of economic activity • Quality and frequency of existing loan data estimations

6. ECB-UNRESTRICTEDFINAL Strong request from users, in a cost-conscious approach • Governing Council • Monetary policy • Market operations • Financial Stability/Macroprudential • Risk management • European Commission • European Banking Authority • Micro-prudential supervision • Statistics • Research • National Central Banks • European Systemic Risk Board • Credit institutions • Public at large Users / tasks • Access to credit (esp. SMEs) • Transmission channels • Financial constraints • Stress-tests • Early warning systems • Off-site and on-site supervision • Calibrate and validate an ‘ICAS’ • Credit worthiness [foremost for reporting agents] • Others… Analyses • strong requirements for different policy-making bodies • carefully assessed against associated costs of data collection: merits and costs procedure, open consultation • with the continuous involvement of the industry

7. Pros of collecting granular information ECB-UNRESTRICTEDFINAL Surveys • limited coverage, low comparability • often run ad hoc to address urgent needs,no/limited time series • expensive, for both reporting agents and central banks Aggregated data • individual institutions combine their positions and transactions into a limited set of statistics/indicators • well established, broad coverage, relatively limited costs of reporting • long lead time (years) to address ever changing policy needs Granular data • instrument-by-instrument and counterparty-by-counterparty • more informative: more sophisticated analysis, address heterogeneity • flexible: meet ever-changing user needs in a timely manner • cost-effective: high set-up costs more than offset by running savings in the medium-term, also for banks! Aggregated data can be derived from granular data

8. The AnaCredit endeavour: basic features ECB-UNRESTRICTEDFINAL Multipurpose set of harmonised granular data on credit and credit risk AnaCredit Analytical Credit Datasets • What? bank loans to legal entities above €25,000e.g. non-financial corporations or governments (not households) • When? as of September 2018 (ref. period) • Who?all banks in the euro area (incl. resident foreign branches) • For whom? several central banking purposes andnumerous users, both internal and external • Legal basis? ECB Regulation adopted on 18 May 2016 (ECB/2016/13)

9. Main achievements and ongoing initiatives • ECB Regulation adopted on 18 May 2016 (ECB/2016/13) • AnaCredit Manual to support reporting agents in their reporting • Part I published on 10 Nov. 2016 • Part II to be published in Q1 2017 • Part III (with case studies) in April 2017 • Support to reporting institutionsboth from ECB team and via NCBs • AnaCredit-Support AnaCredit-Support@ecb.europa.eu • Q&A section on the ECB website • Validation checks clearly communicated • Continuous dialogue with the industry: Meetings, E-mails, Written comments on the draft Manual, etc. • Compliant with Banks’ Integrated Reporting Dictionary – BIRD

10. ECB-UNRESTRICTEDFINAL Challenges for credit institutions with cross-border activity (1/2) (As you well know!) financial intermediation is complex • Instruments–multipurpose contracts • Counterparties–lenders, borrowers, guarantors, etc. • Protection– collaterals, guarantees, credit derivatives • Relationships – foreign branches, banking groups, syndicated loans, joint debtors, connected clients, etc. Credit Risk CR1 Creditor L1 Instrument I1 Credit Risk CR2 Creditor L2 Credit Risk CR3 Col. / Guar. C1 Debtor D1 Instrument I2 Col. / Guar. C2 Debtor D2

11. Challenges for credit institutions with cross-border activity (2/2) • Credit institutions with cross-boarder activities will probably report to different NCBs via their (euro area) various branches and subsidiaries • NCBs will coordinate with each other to avoid double reportingStill some duplication may happen in the early years • Based on harmonised set of definitions, AnaCredit reporting and standards will – to a large extent – be the same across countries • big advantage of standardisation • high benefits also for banks in first place, thanks to the possibility to assess (cross-border) risk exposure in an integrated way • AnaCredit leverages on granular data produced by banks for their internal processes

12. ECB-UNRESTRICTEDFINAL Potential use of AnaCredit for credit assessment • In general, no granular information (loan-/borrower-/lender level) will be disclosed, whether anonymised or not • ECB will notoffer any credit scorings re: e.g. individual SMEs • ECB will not distort competition in the market of credit information • AnaCredit sets standards on important credit variables/dimensions • Market-led initiatives could build upon these standards and data quality esp. as originators will report on this basis

13. ECB-UNRESTRICTED FINAL Thank you! Questions

14. New tasks and new data needs from the financial crisis ECB-UNRESTRICTEDFINAL Phase A - post Lehman Brothers – Sept 2008 banks’ rescue, government guarantees Who holds GR, IE, PT government debt? How big are EU financial inter-linkages? How healthy are euro area banks? Phase B – May 2010 Sovereign debt crisis and again banking crisis How exposed are euro area investors? Phase C - May 2012 Banking Union announced 2011 2013 2010 2009 2012 2014 2008 2015 2016 EU Financial Supervision ESAs/ESRB - Nov 2010 ECB’s banking supervision – Nov 2014 Single Resolution Mechanism – Jan 2015 Single Resolution Fund – Jan 2016

15. Available granular data is hardly comparable across countries • Wide range of information on credit and credit risk data is already available throughout the EU • Central Credit Registers (CCRs) • Private Credit Bureaus • aggregate statistics • surveys • But such datasets are largely heterogeneous across countries • available in many, but not all countries • different coverage - instruments, lenders and borrowers population, time period covered, reporting threshold, etc. • different concepts and definitions, e.g. firm size, valuation principle • different level of detail loan-by-loan, borrower-by-borrower

16. Current availability of granular credit information in Europe Credit Reporting Systems per country (indicative list) Source: European Credit Research Institute

17. Examples of questions to be answered with AnaCredit • MFI interest rate statistics show a significant cross-country divergence in cost of short-term borrowing for firms after the crisis, in part still persisting • What are the reasons for this heterogeneity? • Are firmsmore risky, i.e. have a higher probability of default, in some countries? • Are firmsin certain sectors of activitymore risky than others, hence countries where such sectors are dominant experience high average borrowing costs? • Does it depend on the bank-firm relationshipe.g. small vs large banks lending to smaller/larger firms? • Do some countries have more new or innovative firms, which are normally charged with higher rates because their credit worthiness is difficult to assess? • Are SMEsfacing similar conditions as large firms? • Aggregated credit developments may underpin different analyses and results • To know the true story we need AnaCredit Bank interest rate statistics Interest rate on short-term loans to NFCs up to an amount of EUR 1 million (percentages per annum)

18. Process overview: main milestones • ESCB initiative launched by STC and FSC in March 2012 • Decision ECB/2014/6 approved by Governing Council on 24 Feb. 2014 • Organisation of preparatory measures for the NCBs and the ECB • Commitment to establish a ‘common’ granular dataset on credit and credit risk • Tool for monitoring of progress achieved  STC annual progress report • Merits & Costs exercisesince 2000, input to statistical Regulations • Costs assessment (May 2014) for NCBs and Reporting agents • Merits assessment (Sept. 2014) prioritiesbased on 95 business cases • Close cooperation with the banking sector • Regular contacts with reporting agents via NCBs: fact-finding and cost assessment • presentations to/meeting with the industry e.g. EBF already from 2012 • Reporting Manual: Part I published on 10 November 2016, Part II in March • Legal framework – Regulation ECB/2016/13 • Approved by the GovC on 18 May 2016; with discretion left to NCBs • Draft Guideline (addressed to NCBs) work in progress

19. Basic content of the AnaCredit dataset ECB-UNRESTRICTEDFINAL 88 attributes to assess the credit intermediation