In the third quarter of 2017, EU banks' continued to strengthen their capital ratios. The CET1 ratio experienced an increase of 30 bps, from 14.3% in Q2 2017 to 14.6% in Q3 2017. This growth was jointly driven by an increase in CET1 capital and decrease in the total risk exposures amount, mostly for credit risk. Compared to the previous quarter, the fully loaded CET1 ratio also increased by 30 bps to 14.3%.
The ratio of non-performing loans (NPLs) kept a modest downward trend, decreasing by 30 bps to 4.2%, and suggesting that, although slowly, supervisory efforts are bearing their fruit. However, the results of the EBA Risk Assessment Questionnaire suggest that major impediments to the resolution of NPLs remain, such as lengthy and expensive judiciary processes and the lack of liquidity in secondary NPL markets. In this respect, the recently published EBA NPL transaction templates are a first contribution to widen the investors' base and reduce asymmetric information in the secondary market.
Profitability indicators have improved slightly but sustainable returns remain elusive for many banks.
The loan-to-deposit ratio continued to decrease, reaching 117.2% with a 30 bps decline from the previous quarter. The leverage ratio remained broadly stable, increasing 10 bps from 5.3% (Q2 2017) to 5.4% (Q3 2017).
The results of the Risk Assessment Questionnaire also show that cyber risk and data security are considered as the main drivers for the increase in operational risk. They are also assumed to be the main factors that might negatively influence market sentiment, along with the uncertainties around the UK's decision to leave the EU.
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