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    EBA Publishes Risk Dashboard for First Quarter of 2019

    July 04, 2019

    EBA published risk dashboard for the first quarter of 2019. The dashboard, which is on data as of the first quarter of 2019, summarizes the main risks and vulnerabilities in the banking sector in EU or European Economic Area. The risk dashboard includes, for the first time, IFRS 9 related data on asset quality and fair valued positions as well as information about the sovereign exposures of banks. EBA also published the results of its Risk Assessment Questionnaire (RAQ), which includes bank and market analyst expectations on future trends and developments.

    The dashboard is based on a sample of 150 banks, covering more than 80% of the EU banking sector (by total assets), and presents the following key results:

    • The capitalization of EU banks remains strong, with capital ratios being unchanged during the first quarter of the year. CET1 ratios—both fully loaded and transitional—remain unchanged at 14.5% and 14.7%, respectively. 
    • The improvement of asset quality slowed down. The ratio of non-performing loans (NPLs) declined to 3.1% from 3.2% in the previous quarter, but at a slower pace than in the earlier quarters. The decrease in NPL ratio was mainly supported by an increase of total loan volumes (3.4% growth quarter-over-quarter [QoQ]) and as such comes despite a very slight rise in NPLs.
    • In terms of funding and liquidity, EU banks did not show any major changes. The loan-to-deposit ratio for households and non-financial corporations continued its constantly decreasing trend to 116.8% (down from 117.0% in the previous quarter). The liquidity coverage ratio (LCR) continued its upward trend, now reaching 152.7%. The asset encumbrance ratio declined slightly, to now 27.6% compared to 28.0% in the previous quarter.

    Additionally, a semi-annual Risk Assessment Questionnaire survey was conducted among banks and market analysts in Spring 2019. For this edition, 62 banks and 18 market analysts submitted their answers. The Risk Assessment Questionnaire results reflected the low profitability of EU banks, which entails potential risks for the EU banking sector. According to the responses to the Risk Assessment Questionnaire, banks plan to further expand their corporate lending, especially in the small and medium enterprises (SME) segment, and their household exposures through mortgages and consumer lending. Almost half of the banks aim to fund their growth by increasing minimum requirement for own funds and eligible liabilities (MREL) and retail deposits. Furthermore, banks identified cyber risk and data security as main drivers for an increase in operational risk. Finally, on sustainable finance, which is included in the Risk Assessment Questionnaire for the first time, the answers show that a huge majority of the banks have developed or are planning to develop green products in their portfolios.

     

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    Keywords: Europe, EU, Banking, Risk Dashboard, CET 1, Basel III, NPLs, LCR, Risk Assessment Questionnaire, MREL, Cyber Risk, Operational Risk, EBA

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