January 08, 2019

EBA published the risk dashboard for the third quarter of 2018. The dashboard summarizes the main risks and vulnerabilities in the EU banking sector using quantitative risk indicators. EBA also published the results of its Risk Assessment Questionnaire, which includes the opinions of banks and market analysts on the risk outlook collected in Autumn 2018. In the third quarter of 2018, the dashboard confirms improvements in both asset quality and capital ratios, while profitability remains subdued.

The dashboard reveals that the capital ratios of European banks remained high, with a modest increase since the second quarter of 2018. The common equity tier 1 (CET 1) ratio on a transitional basis increased from 14.5% in the last quarter to 14.7% in the third quarter of 2018 as the result of both an increase in CET 1 capital and a decrease in total risk exposures. Banks representing 99.6% of total assets have a CET 1 ratio above 11%. The quality of the loan portfolio of banks in EU has improved further. In the third quarter of 2018, the ratio of non-performing loans (NPLs) to total loans kept the downward trend and stood at 3.4%, its lowest level since the NPL definition was harmonized across European countries in 2014. Profitability in the EU banking sector needs to improve further while the loan-to-deposit ratio has remained broadly stable. Moreover, the leverage ratio (fully phased-in) remained stable at 5.1% and the liquidity coverage ratio improved to 148.5% in the third quarter of 2018, the highest value since the third quarter fo 2016 and well above the 100% requirement.

 

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Keywords: Europe, EU, Banking, Risk Dashboard, NPLs, CET 1, Liquidity Risk, EBA

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