Dagong Europe lauds post-crisis reaction of EU financial institutions

European financial institutions have reacted to the challenges brought by the financial crisis and are adapting to the changing framework, rating agency Dagong Europe said in a report released on Thursday.

Analysts of Dagong Europe, the European branch of Chinese rating agency Dagong Global Credit Rating Co. Ltd, said the measures taken by financial institutions and regulators have addressed prevention and shortcomings in capital and liquidity management.

"We see banks issuing fresh capital as a sign of increasing market confidence," Christina Sterr, director of the financial institutions analytical team at Dagong Europe said.

"Investor appetite has been strong recently to absorb capital issues, with approximately 80 billion euros (about 101 billion U.S. dollars) raised by European banks in 2013 and probably an additional 60 billion euros in 2014," she added.

Through deleveraging and removing risk, financial institutions have also managed to improve their capital ratios, Sterr said, but nonetheless hoped for a "more decisive approach in the disposal of problematic and non-core assets than shown recently."

She also underlined that, although decreasing, financial market fragmentation persists, mainly driven by structural differences in national banking systems and the performance of home market economies.

"But on the positive side, contagion risk between banks and sovereigns has decreased significantly, as demonstrated in recent outfalls," Sterr pointed out.

In terms of liquidity, the introduction of the European Central Bank (ECB)'s long-term refinancing facilities in 2008 has helped banks to ease short-term liquidity pressure, Carola Saldias, sector head and senior director of Dagong Europe's analytical team, noted.

In her view, recent ECB initiatives like a negative deposit rate, targeted long-term loans, and a larger asset buying program are expected to further facilitate market access for banks and should stimulate lending.

Overall, Dagong Europe viewed the ECB's refinancing operations "positively," Saldias highlighted but also warned of "the risk of creating funding dependencies."

Dagong Europe, based in Italy's business capital Milan, concentrates on corporate credit ratings assigned to both financial and non-financial entities.

The agency has a team of professionals from various countries and provides a viewpoint into the current rating system within the European Union.