23 October 2017

ECB: Report on financial structures shows ongoing consolidation in the banking sector

The total assets of domestic euro area banks amounted to €24.2 trillion on a consolidated basis at the end of 2016, a 0.5% increase on the previous year and a 14% decline compared with 2008. In 2016, total bank lending grew at a moderate pace of 1%.

The share of debt securities in total banking sector assets continued to contract, reflecting reduced holdings of domestic government bonds in many euro area countries in the aftermath of the financial crisis and the ECB’s ongoing asset purchase programme. On the liabilities side, the trend towards greater reliance on deposit funding gained traction in 2016, as the median share of customer deposits in total liabilities increased by 7 percentage points to 52%.

The regulatory capital ratios of euro area banks continued to rise, mainly on account of capital increases. The median phased-in Common Equity Tier 1 (CET1) capital ratio stood at 15.4% in 2016, up from 14.4% in 2015. The profitability of the banking sector remained relatively low during the year as structural inefficiencies continued to hamper profitability in many countries. In particular, while the median non-performing loan (NPL) ratio declined further, the stock of NPLs remained persistently high in a number of countries.

In terms of total assets, the share of the non-bank financial sector has grown from 43% in 2008 to 55% in early 2017. A corresponding decline initially took place in the share of monetary financial institutions (MFIs), but that trend came to a halt recently, with the share of MFI total assets (excluding MMFs) remaining broadly unchanged, at around 45%, in 2016 and early 2017.

In the current low-yield environment, insurance corporations and pensions funds (ICPFs) in some countries have shifted their portfolios towards higher-yielding assets to boost investment income. The profitability of the insurance sector has been constrained in recent years, but its solvency position is well above the requirements of the EU’s Solvency II supervisory regime.

Growth in the investment fund sector, underpinning much of the expansion of the non-bank financial sector since the global financial crisis, continued its secular growth trend in 2016: total assets in the investment fund sector – excluding MMFs – rose by 7% in 2016 and have grown by approximately 160% since 2008.

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