Today, the European Banking Authority (EBA) released its Q2 2023 quarterly Risk Dashboard (RDB), highlighting several key points:
- Banks’ profitability and capital ratios have continued to improve, despite ongoing macroeconomic uncertainty that has dampened loan growth.
- High levels of macroeconomic and geopolitical uncertainty persist. The European Commission has revised its economic outlook downward, with concerns related to China’s economic growth posing additional risks for the European economy. The introduction of new banking taxes has added to market uncertainty.
- Banks within the European Union and European Economic Area (EU/EEA) have maintained strong capitalization levels. The average common equity tier 1 (CET1) ratio has reached a historical high of 15.9%, reflecting a 20bps increase on a fully loaded basis. Additionally, liquidity coverage ratios (LCR) and net stable funding ratios (NSFR) have improved.
- Sustainability considerations are becoming more prominent in banks’ funding decisions. The use of green bonds has increased for non-preferred senior bonds and remained steady for covered and preferred senior debt.
- Slower economic growth has resulted in stagnant loan growth, with outstanding loans to households and non-financial corporates remaining flat. While asset quality is generally robust, some countries have reported an increase in non-performing loans (NPL), indicating potential future challenges.
- Return on Equity (RoE) has improved in the second quarter, primarily due to increased net interest income. Net interest margins (NIM) have also increased, although the growth rate has slowed compared to previous quarters.
- Operational risks, particularly ICT and cyber-related risks, remain a significant concern. There are also reports of anti-money laundering (AML) deficiencies, with 143 serious deficiencies identified in 57 institutions between June and August, based on the EBA’s EuReCa data.
By FCCT Editorial Team
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