03 April 2023

EBA: Robust EU/EEA banking sector shows strong capital and liquidity ratios

Volatility in EU/EEA banks’ equity and debt has been strongly affected by Silicon Valley Bank (SVB) and Credit Suisse related events, although direct exposures of EU/EEA banks towards these banks were limited according to indications from supervisory reporting as of Q4 2022. Banks’ capital and liquidity ratios remain strong and profitability continues to increase.

The European Banking Authority (EBA) today published its quarterly Risk Dashboard (RDB) together with the first edition of the RDB on minimum requirement for own funds and eligible liabilities (MREL). eased their capital ratios and maintained high liquidity ratios in Q4 2022.

• The average Common Equity Tier 1 (CET1) ratio increased to 15.3% from 14.8% in the previous quarter on a fully loaded basis.
• The average Liquidity Coverage Ratio (LCR) reached 164.7% (vs. 162.4% in Q3 2022) while the average Net Stable Funding Ratio (NSFR) decreased slightly (125.8% in Q4 2022).
• EU/EEA banks have a diversified funding and liquidity profile. Going forward, banks need to prepare for the repayment of TLTRO for Euro area banks.
• Total assets declined in the fourth quarter by around 7%. The decline was driven by cash balances (-16%), presumably related to TLTRO repayments.
• Household exposures have remained roughly stable, whereas loans to non-financial corporates (NFC) rose by nearly 1% QoQ, supported by commercial real estate exposures (CRE; +2.3% QoQ).
• Debt securities represent 11.6% of total assets (around EUR 3.1tn). Of these securities, around EUR 1.5tn are booked at amortised cost.
• The non-performing loan (NPL) ratio remained stable at 1.8%. While the share of stage2 loans decreased slightly to 9.4% in Q4 2022 from 9.6% for Q3 2022, cost of risk increased slightly from 0.43% to 0.46% during the same period.
• Average return on equity (RoE) increased materially from 7.3% in Q3 2022 to 8% in Q4 2022, not least driven by the rise in net interest margins (NIM).

 

• Early March financial market volatility increased sharply and this led to a significant drop in banks' share prices, higher yields, and wider credit spreads for banks. Among others, AT1 markets were particularly negatively affected, notably following the total write-down of CS AT1 holders.

 

• Banks’ share prices and credit spreads have partially recovered since mid-March volatility.

 

EBA

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