EBA published risk dashboard for the second quarter of 2019. The risk dashboard summarizes the main risks and vulnerabilities in the EU banking sector. In the second quarter of 2019, the capital ratios have remained broadly stable and banks' asset quality has further improved. However, low profitability continues to be a key challenge for the banking sector.
The dashboard is based on a sample of 150 banks that cover more than 80% of the banking sector in EU. The following are the key highlights of the risk dashboard:
- Capital ratios of EU banks have remained broadly stable since the third quarter of 2018. Fully loaded Common Equity Tier 1 (CET 1) ratios remained at 14.4%, in line the previous quarters. The CET1 ratio on a transitional basis was 14.6%, 10bps below Q1, mainly as a result of the one-off changes in the reporting sample. While the average capital ratios remained broadly unchanged, banks on the lower end of the distribution further increased the capital ratios.
- The improvement in asset quality continued, but at slower pace. The ratio of nonperforming loans (NPLs) further declined to 3.0% from 3.1% in the previous quarter. However, while the first quarter decrease of the NPL ratio was mainly supported by an increase in total loans, the contraction in the second quarter was driven by declining NPLs. Around 40% of the sovereign exposures of banks have a maturity of more than five years while 42% of the sovereign exposures are toward the banks' home countries and 28% toward other EU/European Economic Area countries.
- No major changes took place to funding and liquidity related risk indicators of EU banks. The loan-to deposit ratio for households and non-financial corporations continued its constantly decreasing trend to 116.4%. The liquidity coverage ratio declined from 152.6% in the previous quarter to 149.2%, stopping its rising trend of the previous quarters.
Looking forward, rising economic and political uncertainty might negatively affect the EU banking sector. The challenge of low profitability might aggravate amid potentially increasing impairments and provisioning needs. Also, new lending volumes might suffer from a worsening in the general economic conditions and from a deterioration of the asset quality.
- Press Release
- Risk Dashboard (PDF)
- Risk Dashboard Interactive Tool (XLSX)
- Risk Dashboard Annex (PDF)
Keywords: Europe, EU, Banking, Risk Dashboard, Liquidity Risk, CET 1, Basel III, NPL, Credit Risk, LCR, EBA
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