Featured Product

    EBA Publishes Report on Risks and Vulnerabilities in EU Banking Sector

    November 29, 2019

    EBA published its annual report on risks and vulnerabilities in the EU banking sector. The report is accompanied by the publication of the 2019 EU-wide transparency exercise, which provides detailed information, in a comparable and accessible format, for 131 banks across the EU. This report describes the main developments and trends in the EU banking sector since the end of 2018 and provides EBA outlook on the main risks and vulnerabilities. Overall, EU banks’ solvency ratios remained stable, while the NPL ratio further contracted.

    The report shows that asset quality has continued to improve, although at a slower pace. The non-performing loan (NPL) ratio declined from 3.6% in June 2018 to 3% in 2019. However, the focus on riskier exposures over the past few years combined with a weakening macroeconomic outlook might change this trend. Banks should take advantage of the current low interest rate environment to build up their minimum requirement for own funds and eligible liabilities (MREL) buffers. With an increasing number of banks charging or planning to charge negative interest rates to corporate and household deposits, the effects of such measures on the deposit base remain to be seen.

    After material progress over the past few years, capital ratios remained broadly unchanged year on year (YoY). As of June 2019, the common equity tier 1 (CET1) ratio stood at 14.4% (14.3% in June 2018) on a fully loaded basis. A parallel increase in risk-weighted assets (RWAs) (2.5% YoY) and CET1 (3% YoY) was observed in the last year. Credit risk, which makes up 80% of total RWA, has increased by roughly 2.5%, which is lower than the growth in total assets (3%) and total loans (3.5%). Such developments indicate that credit RWAs are driven not only by trends in banks’ assets, but also by changes in the composition of banks’ exposures and risk parameters. Assets of EU banks rose by 3% between June 2018 and June 2019. Since 2014, commercial real estate, small and medium-sized enterprise, and consumer credit exposures have been the segments with the highest growth rates. 

    The report highlights that the deteriorating macroeconomic environment along with low interest rates and intense competition from banks and from financial technology (fintech) firms and other financial players is expected to add further pressure to bank profitability. In this challenging environment, the streamlining of operating expenses is presumably the main area to improve profitability. Technology risks and increasing money laundering and terrorist financing cases are some of the key drivers for constantly elevated operational risk while cyber-attacks and data breaches represent major concerns for banks.

     

    Related Links

    Keywords: Europe, EU, Banking, Transparency Exercise, Risk Assessment Report, Risks and Vulnerabilities, MREL, Credit Risk, Operational Risk, EBA

    Related Articles
    News

    EBA Proposes Guidelines for Establishing Intermediate Parent Entities

    EBA issued a consultation paper on the guidelines on monitoring of the threshold and other procedural aspects of the establishment of intermediate EU parent undertakings, or IPUs, as laid down in the Capital Requirements Directive.

    January 15, 2021 WebPage Regulatory News
    News

    EC Adopts Financial Reporting Changes Arising from Benchmark Reforms

    EC published Regulation 2021/25 that addresses amendments related to the financial reporting consequences of replacement of the existing interest rate benchmarks with alternative reference rates.

    January 14, 2021 WebPage Regulatory News
    News

    BIS Bulletin Examines Key Elements of Policy Response to Cyber Risk

    BIS published a bulletin, or a note, that examines the cyber threat landscape in the context of the pandemic and discusses policies to reduce risks to financial stability.

    January 14, 2021 WebPage Regulatory News
    News

    HMT Updates List of Post-Brexit Equivalence Decisions in UK

    HM Treasury, also known as HMT, has updated the table containing the list of the equivalence decisions that came into effect in UK at the end of the transition period of its withdrawal from EU.

    January 14, 2021 WebPage Regulatory News
    News

    EBA Issues Erratum for Technical Package on Reporting Framework 3.0

    EBA published an erratum for technical package on phase 1 of the reporting framework 3.0.

    January 14, 2021 WebPage Regulatory News
    News

    APRA Publishes FAQ on Measurement of Credit Risk Weighted Assets

    APRA updated a frequently asked question (FAQ), for authorized deposit-taking institutions, on the measurement of credit risk weighted assets.

    January 14, 2021 WebPage Regulatory News
    News

    EBA Publishes Risk Dashboard for Third Quarter of 2020

    EBA published the quarterly risk dashboard, along with the results of the Risk Assessment Questionnaire survey among 60 banks and 15 market analysts.

    January 13, 2021 WebPage Regulatory News
    News

    ECB Analysis Shows Privacy as Biggest Concern in Use of Digital Euro

    ECB concluded the public consultation on the introduction of a digital euro in EU.

    January 13, 2021 WebPage Regulatory News
    News

    ECB Analysis Shows Privacy as Biggest Concern in Use of Digital Euro

    ECB concluded the public consultation on the introduction of a digital euro in EU.

    January 13, 2021 WebPage Regulatory News
    News

    ECB Finalizes Guide on Supervisory Approach to Bank Consolidation

    ECB published a guide that sets out the supervisory approach to consolidation in the banking sector.

    January 12, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 6432