ECB fines PTSB €2.5m for breaches of banking liquidity rules
PTSB has ‘fully remediated the issue’, says ECB following issuing of first banking fine
The European Central Bank’s banking supervision arm has fined Permanent TSB €2.5 million for breaching regulatory requirements over how much cash and easily-sold assets lenders must hold to meet short-term obligations.
It represents the first imposition of a penalty on a euro-zone bank since the ECB assumed responsibility for the regulation of the currency region’s financial institutions in late 2014.
The Dublin-based bank, which is 75 per cent owned by the State, said in a statement that the breaches had arisen between October 2015 and April 2016 when it misinterpreted revised regulations in relation to its so-called liquidity coverage ratio (LCR).
“At no point during this period did the group’s actual liquidity position deteriorate,” PTSB said, adding that it had spotted the error itself and reported it to the ECB and “co-operated fully with the ECB on the matter”.
The group’s LCR has been fully compliant since late April 2016, it said. Specifically, the breach relates to a misinterpretation of how ECB funding is treated in the calculation of the ratio, according to the bank.
Banks are required by the ECB to hold enough highly liquid assets to cover the difference between the expected cash outflows and inflows over a 30-day stressed period.
The group had a liquidity buffer of about €4 billion at the time these breaches occurred and the current level exceeds €6.5 billion, a spokesman for the bank said. He declined to comment on the extent to which the liquidity ratio fell short of the ECB’s requirement when it was in breach of the rules.
PTSB was the only Irish company among 24 European banks to fail a stress test in late 2014 as the ECB’s single supervisory mechanism unit prepared to take over the supervision of euro-zone lenders. The bank subsequently raised €525 million through the sale of shares and subordinated bonds the following year to help shore up its capital base.
The liquidity breaches revealed on Monday stem from changes introduced by the European Commission regarding how ECB funding facilities should be accounted for in the calculation of a bank’s LCR. The rules set out technical instances when the repayment of ECB funding must be included in outflow rates for the purposes of LCR calculations and when they may be excluded.
At the end of 2015, PTSB was reliant on the ECB for almost €4.7 billion of funding. However, that figure had fallen to about €230 million by the end of June of this year.
Broken down, an ECB penalty of €750,000 was imposed as PTSB failed to comply between October 27th and December 31st in 2015 with requirements requested by the ECB the previous February. A further €1.75 million penalty relates to similar breaches between January 4th and April 26th last year relating to ECB requirements set in November 2015.
“The ECB notes that this breach did not change the liquidity position of Permanent TSB Group Holdings plc and that the bank has fully remediated the issue,” the ECB said.
Meanwhile, Moody’s, one of the world’s largest credit assessment firms, upgraded its view on PTSB’s unsecured debt and deposit ratings on Friday, partly as a result of the bank’s falling reliance on capital markets and the ECB for funding.
At the end of June, the bank’s key loan-to-deposits ratio stood at 110 per cent, down from 124 per cent a year earlier. However, Moody’s new ratings on PTSB’s unsecured debt and deposits remain below what the agency deems to be “investment grade”.