EBA published its annual report on risks and vulnerabilities in the EU banking sector. The report is accompanied by the publication of the 2019 EU-wide transparency exercise, which provides detailed information, in a comparable and accessible format, for 131 banks across the EU. This report describes the main developments and trends in the EU banking sector since the end of 2018 and provides EBA outlook on the main risks and vulnerabilities. Overall, EU banks’ solvency ratios remained stable, while the NPL ratio further contracted.
The report shows that asset quality has continued to improve, although at a slower pace. The non-performing loan (NPL) ratio declined from 3.6% in June 2018 to 3% in 2019. However, the focus on riskier exposures over the past few years combined with a weakening macroeconomic outlook might change this trend. Banks should take advantage of the current low interest rate environment to build up their minimum requirement for own funds and eligible liabilities (MREL) buffers. With an increasing number of banks charging or planning to charge negative interest rates to corporate and household deposits, the effects of such measures on the deposit base remain to be seen.
After material progress over the past few years, capital ratios remained broadly unchanged year on year (YoY). As of June 2019, the common equity tier 1 (CET1) ratio stood at 14.4% (14.3% in June 2018) on a fully loaded basis. A parallel increase in risk-weighted assets (RWAs) (2.5% YoY) and CET1 (3% YoY) was observed in the last year. Credit risk, which makes up 80% of total RWA, has increased by roughly 2.5%, which is lower than the growth in total assets (3%) and total loans (3.5%). Such developments indicate that credit RWAs are driven not only by trends in banks’ assets, but also by changes in the composition of banks’ exposures and risk parameters. Assets of EU banks rose by 3% between June 2018 and June 2019. Since 2014, commercial real estate, small and medium-sized enterprise, and consumer credit exposures have been the segments with the highest growth rates.
The report highlights that the deteriorating macroeconomic environment along with low interest rates and intense competition from banks and from financial technology (fintech) firms and other financial players is expected to add further pressure to bank profitability. In this challenging environment, the streamlining of operating expenses is presumably the main area to improve profitability. Technology risks and increasing money laundering and terrorist financing cases are some of the key drivers for constantly elevated operational risk while cyber-attacks and data breaches represent major concerns for banks.
Keywords: Europe, EU, Banking, Transparency Exercise, Risk Assessment Report, Risks and Vulnerabilities, MREL, Credit Risk, Operational Risk, EBA
Previous ArticleHKMA Highlights Technology Initiatives at the Hong Kong FinTech Week
The European Banking Authority (EBA) published the final draft regulatory technical standards specifying and, where relevant, calibrating the minimum performance-related triggers for simple.
The European Central Bank (ECB) is undertaking the integrated reporting framework (IReF) project to integrate statistical requirements for banks into a standardized reporting framework that would be applicable across the euro area and adopted by authorities in other EU member states.
The European Banking Authority (EBA) has been awarded the top European Standard for its environmental performance under the European Eco-Management and Audit Scheme (EMAS).
The Monetary Authority of Singapore (MAS) set out the Financial Services Industry Transformation Map 2025 and, in collaboration with the SGX Group, launched ESGenome.
The Basel Committee on Banking Supervision met, shortly after a gathering of the Group of Central Bank Governors and Heads of Supervision (GHOS), the oversight body of BCBS.
The International Organization of Securities Commissions (IOSCO) welcomed the work of the international audit and assurance standard setters—the International Auditing and Assurance Standards Board (IAASB)
The Bank of England (BoE) published a Statistical Notice (2022/18), which informs that due to the Bank Holiday granted for Her Majesty Queen Elizabeth II’s State Funeral on Monday September 19, 2022.
The French Prudential Control and Resolution Authority (ACPR) announced that the European Banking Authority (EBA) has updated its filing rules and the implementation dates for certain modules of the EBA reporting framework 3.2.
The European Central Bank (ECB) published a paper that examines how credit rating agencies accepted by the Eurosystem, as part of the Eurosystem Credit Assessment Framework (ECAF)
The Australian Prudential Regulation Authority (APRA) announced reduction in the aggregate Committed Liquidity Facility (CLF) for authorized deposit-taking entities to ~USD 33 billion on September 01, 2022.