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April 05, 2018

EBA published the updated version of its Risk Dashboard, summarizing the main risks and vulnerabilities in the EU banking sector for the fourth quarter of 2017. The dashboard shows significant improvements across EU banks, but elevated NPLs are still the main challenge for their profitability. Following the ESRB recommendation on commercial real estate markets, the EBA Risk Dashboard has an additional page showing the aggregated real estate exposures referred to real estate activities and the construction sector.

The progress is positive for European banks, but risks remain heightened on sustainable profitability. European banks continued to strengthen their capital ratios in the last quarter of 2017. The common equity tier 1 (CET1) ratio increased by 20 bps, from 14.6% in Q3 2017 to 14.8% in the fourth quarter of 2017, reaching a new peak since the fourth quarter of 2014. CET1 ratios are now above 11% for all institutions in the sample. The increase of capital ratios was driven by a decrease of the total risk exposures amount (mostly for credit risk). Additionally, EU banks continued to improve the overall quality of their loan portfolio. In the fourth quarter of 2017, the average ratio of non-performing loans (NPLs) to total loans continued its downward trend, reaching its lowest level since the fourth quarter of 2014 (4.0%). The widespread dispersion among EU countries (with ratios ranging from 0.7% to 44.9%), along with the still high amount of NPLs in banks' balance sheet, remains a vulnerability for the European banking sector as a whole.

The figures included in the Risk Dashboard are based on a sample of 149 banks, covering approximately 90% of the EU banking sector (by total assets), at the highest level of consolidation, while country aggregates may also include large subsidiaries.

 

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Keywords: Europe, EU, Banking, Risk Dashboard, NPLs, CET1, EBA

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