EBA published the risk dashboard for the fourth quarter of 2018. The dashboard summarizes the main risks and vulnerabilities in the EU banking sector based on data as of the end of 2018 data. In comparison with 2017, the dashboard reveals improved asset quality and stable capital ratios, though bank profitability is still below the long-term sustainable levels.
The dashboard presents the following key results:
- Capital ratios of European banks remained high, with a slight decrease when compared to 2017. The common equity tier 1, or CET1, (transitional) ratio was 14.6% in December 2018, showing a slight decrease from 14.9% in 2017. The decrease is driven by an increase in the total risk exposure amount. CET1 ratios remained above 11% for all countries in the sample. The fully loaded CET1 ratio also showed a decrease and stood at 14.4% compared to 14.6% in 2017.
- The quality of loan portfolio of EU banks continued to improve. In 2018, the ratio of non-performing loans (NPLs) to total loans kept the downward trend and reached a value of 3.2%, showing its lowest level, since the NPL definition was harmonized across the EU/European Economic Area. The NPL decline is attributed both to the upward trend of total loans granted and to the steady decline in the amount of NPLs (EUR 658 billion in the fourth quarter of 2018). However, dispersion across EU/European Economic Area countries remained high and economic slowdown could make further improvements harder to achieve. The coverage ratio of NPLs and advances was 45.1% in the fourth quarter of 2018, compared to 44.6% in the fourth quarter of 2017.
- In terms of liquidity risk, the leverage ratio remained stable and the liquidity coverage ratio continued its upward trend reaching 152%. The leverage ratio (fully phased-in) in the fourth quarter of 2018 stood at 5.3%, representing a marginal decrease from 5.4% in the fourth quarter of 2017. Furthermore, the asset encumbrance ratio remained stable compared to 2017.
Keywords: Europe, EU, Banking, Risk Dashboard, NPLs, CET 1, Leverage Ratio, LCR, Liquidity Ratio, EBA
Previous ArticleEBA Single Rulebook Q&A: Fifth Update for March 2019
EBA published a report analyzing the impact of the unwind mechanism of the liquidity coverage ratio (LCR) for a sample of European banks over a three-year period, from the end of 2016 to the first quarter of 2020.
In response to questions from a member of the European Parliament, the ECB President Christine Lagarde issued a letter clarifying the possibility of amending the AnaCredit Regulation and making targeted longer-term refinancing operations (TLTROs) dependent on the climate-related impact of bank loans.
IASB started the post-implementation review of the classification and measurement requirements in IFRS 9 on financial instruments and added the review as a project to its work plan.
FSB published a report that examines progress in implementing policy measures to enhance the resolvability of systemically important financial institutions.
EBA published a report on the benchmarking of national loan enforcement frameworks across 27 EU member states, in response to the call for advice from EC.
FSB published a letter from its Chair Randal K. Quarles, along with two reports exploring various aspects of the market turmoil resulting from the COVID-19 event.
RBNZ launched a consultation on the details for implementing the final Capital Review decisions announced in December 2019.
The Trustees of the IFRS Foundation, which are responsible for the governance and oversight of IASB, have announced the appointment of Dr. Andreas Barckow as the IASB Chair, effective July 2021.
HKMA issued a letter to consult the banking industry on a full set of proposed draft amendments to the Banking (Capital) Rules for implementing the Basel standard on capital requirements for banks’ equity investments in funds in Hong Kong.
ESRB published an opinion assessing the decision of Swedish Financial Supervisory Authority (FSA) to extend the application period of a stricter measure for residential mortgage lending, in accordance with Article 458 of the Capital Requirements Regulation (CRR).