New and legacy nonperforming-loan cleanup, and new rules associated with the process, will be central issues for European banks next year just as IFRS 9 and Basel IV were key themes in 2017.
The cleanup process is vigorously underway in Italy, Greece, and Portugal where NPEs are sharply falling, albeit from very high levels.
The solvency of EU banks, with capital floors (set at 72.5% and transitional to 2026), IFRS 9, and new minimum levels (SREP) is no longer a lingering and protracted concern for most of the sector.
Share buybacks, reducing excess capital generation, and increased payouts will be critical drivers of relative stock performance. Dividend payouts may increase at specific lenders while restart at others.
MREL requirements will be laid out in 2018, and will exert a pull on capital structures.