January 16, 2018

EBA published an updated risk dashboard for the third quarter of 2017, along with the results from the Risk Assessment Questionnaire. The dashboard identified ongoing improvements in the repair of the EU banking sector, in addition to the residual risks in non-performing loans (NPLs) and bank profitability.

The risk dashboard shows that EU banks continued to strengthen their capital ratios in the third quarter. The common equity tier 1 (CET1) ratio experienced an increase of 30 basis points, from 14.3% in the second quarter of 2017 to 14.6% in the third quarter of 2017. The ratio of NPLs kept a modest downward trend, decreasing by 30 basis points to 4.2%. Profitability indicators have improved slightly but sustainable returns remain elusive for many banks. The loan-to-deposit ratio continued to decrease and the leverage ratio remained broadly stable. The figures included in the dashboard are based on a sample of 152 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 subsidiaries. The analysis used quantitative risk indicators, along with the opinions of banks and market analysts from the EBA Risk Assessment Questionnaire. 

On the future of the funding of banks in the EU, results of the EBA Risk Assessment Questionnaire suggest that banks are expected to attain more instruments eligible for Minimum Requirement for Own Funds and Eligible Liabilities (MREL), even though they consider uncertainty on the specific MREL requirements as a constraint to their issuance. The results of the questionnaire also show that cyber risk and data security are considered as the main drivers for increase in operational risk. They are also assumed to be the main factors that might negatively influence market sentiment, along with the uncertainties around the UK's decision to leave the EU. 

 

Related Link: Press Release

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

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