EBA risk dashboard
signs of credit quality deterioration are becoming apparent
The European Banking Authority (EBA) released its fourth-quarter 2023 Risk Dashboard, revealing collective statistical data for the major banking institutions within the EU/EEA.
The report indicates that banks within the EU/EEA are experiencing unprecedented capital levels and enhanced liquidity. However, it also notes a slight decline in credit quality. Additionally, the report covers data on the minimum necessary own funds and eligible liabilities (MREL).
Banks within the EU/EEA have achieved unprecedented capitalization levels, with the average common equity tier 1 (CET1) ratio (fully loaded) reaching 15.9%, an increase of 50 basis points since December 2022. The liquidity coverage ratio (LCR) has seen an uptick after several periods of decline, and the net stable funding ratio (NSFR) also saw a modest rise in the last quarter, stabilizing close to previous quarter levels at 167% and 127%, respectively. The initial months of 2024 witnessed favorable financial market conditions, marked by a significant volume of debt issued by banks.
Growth in loans and assets remained muted, influenced by stricter lending criteria implemented by banks and reduced demand. Risk-weighted assets (RWAs) saw a slight increase, primarily due to a rise in operational risk (from 9.6% to 10.1% of total RWA), which led to a higher RWA density.
Despite generally strong asset quality, there was a minor increase in the non-performing loans (NPL) ratio from 1.8% to 1.9%. The last quarter also saw an uptick in Stage 2 loans and the average cost of risk. NPLs secured by commercial real estate (CRE) edged up slightly, with the NPL ratio for these exposures reaching 4.3%.
There was a slight increase in EU/EEA banks' sovereign exposures in 2023, reversing a trend of decline in the preceding years.
Profitability remained robust in 2023, with a return on equity (RoE) of 10.3%, though there was notable variation across banks. Despite the general benefit from rising interest rates, the proportion of banks with an RoE above 10% dropped from 60% to 45%.
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Relevant Links:
https://www.eba.europa.eu/publications-and-media/press-releases/eu-banks-are-robust-signs-credit-quality-deterioration-are-becoming-apparent-ebas-risk-dashboard
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