The European Banking Authority (EBA) published today the periodic update of its Risk Dashboard. This report summarises the main risks and vulnerabilities in the banking sector by the evolution of a set of Risk Indicators (RI) across the EU in Q2 2016. The update shows an increase in EU banks' capital ratios, while the low profitability and the high level of NPLs remain a concern.
In Q2 2016, EU banks' ratio of common equity tier 1 (CET1) increased by 10bps to 13.5%, driven by a rise of capital and a slight decline of RWAs (ratios are weighted average). The ratio of non-performing loans (NPL) was 5.5%, 10bps below Q1 2016. Notwithstanding the improvement, credit quality and the level of legacy assets remain a concern. The coverage ratio for NPLs improved by 10bps to 43.9% (compared to the previous quarter), but with wide dispersion among countries.
The average return on equity (RoE) was 5.7%, unchanged compared to the past quarter and around one percentage point (p.p.) below the second quarter of the last year. The cost-to-income ratio stopped its increasing trend of the four preceding quarters and decreased when compared to year end 2015 (62.8% per year end 2015, 66.0% in Q1 2016 and 62.7% in Q2 2016).
The loan-to-deposit ratio decreased to 120.5%, compared to 121.6% in the former quarter and the asset encumbrance ratio slightly increased to 25.5% (25.4% in the previous quarter).
Notes to editors
The figures covered in the Risk Dashboard are based on a sample of 156 banks, covering more than 80% of the EU banking sector (by total assets), at the highest level of consolidation, while country aggregates may also include large subsidiaries (the list of banks can be found here
The Risk Dashboard is part of the regular risk assessment conducted by the EBA and complements the Risk Assessment Report.