October 08, 2018

EBA published the periodical update to its risk dashboard for the Second Quarter of 2018. The dashboard summarizes the main risks and vulnerabilities in the EU banking sector using quantitative risk indicators. In the second quarter of 2018, the updated risk dashboard showed sustained improvements in the management of nonperforming loans (NPLs) across EU, with bank profitability remaining a key challenge.

The dashboard showed that capital ratios of European banks remained high, in line with the first quarter of 2018. The common equity tier 1 (CET1) ratio remained at 14.5%, with a slight increase in the value of CET1 capital, accompanied by an increase in total risk exposures. CET1 ratios remained above 12% for all countries in the sample. Additionally, EU banks continued to improve the overall quality of their loan portfolio. The ratio of NPLs to total loans kept the downward trend and achieved a level of 3.6%, the lowest since the NPL definition was harmonized across European countries. The leverage ratio (fully phased-in) remained at 5.1% when compared to the first quarter of 2018. The asset encumbrance ratio decreased from 28.4% in the first quarter of 2018 to 28% in the second quarter of 2018. The liquidity coverage ratio rose to 148.2% from 147% in the first quarter of 2018, remaining well above the 100% requirement.

The data in the risk dashboard are based on a sample of 150 banks, covering more than 80% of the EU banking sector (by total assets), at the highest level of consolidation, while country aggregates may also include large. IFRS 9, which entered into force on January 01, 2018, may have had an impact on some of the ratios included in the dashboard.

 

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Keywords: Europe, EU, Banking, Basel III, Risk Dashboard, NPLs, IFRS 9, EBA

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