Current developments

European banking supervisory authorities regularly set supervisory priorities based on the observed significant risks and weaknesses of the supervised institutions.

At the end of 2024, the ECB Banking Supervision formulated three medium-term supervisory priorities for the years 2025 to 2027, aiming to achieve the following:

• Priority 1: Strengthening resilience against macro-financial threats and geopolitical shocks
• Priority 2: Addressing deficiencies, for example, in the area of climate and environmental risks
• Priority 3: Digital transformation

In this context, the focus is on the ability of institutions to timely identify deteriorations in asset quality and apply appropriate risk provisioning practices. In this regard, the ECB Banking Supervision announces that it will closely examine the risk provisioning process under IFRS 9, including the valuation of collateral, for residential and commercial real estate portfolios during on-site inspections (OSI).

The German supervisory authority has set four supervisory priorities for 2025 and three significant medium- to long-term topics for the less significant institutions (LSIs) directly supervised by it. The supervisory priorities are as follows:

• Monitoring risks and defaults in the lending business with a focus on lending standards, default rates, and collateral values through cross-sectional analyses, particularly in business with highly indebted and economically weak borrowers and companies from sectors or regions with a difficult economic situation; special audits are also planned for institutions with high risks in commercial real estate financing
• Intensifying the review of cyber and IT security risks, as well as outsourcing risks with a focus on multi-client service providers
• Corporate governance and business organization, as well as the function of supervisory bodies
• Impact of interest rate developments, as the interest margins of the past two years are expected to decline

The significant medium- to long-term topics are:

• Consideration of ESG risk factors in risk management and strategy with a focus on climate change
• Digital transformation is changing value chains, and IT systems are becoming a competitive factor; artificial intelligence accelerates these developments
• Impact of demographic change on personnel and customers