The European Banking Authority (EBA) published today an update to its periodic risk dashboard summarising the main risks and vulnerabilities in the EU banking sector on the basis of the evolution of Key Risk Indicators (KRI) from 55 banks for the third quarter of 2014. This edition of the risk dashboard is the first to have balance sheet information based on the supervisory reporting standards from FINREP, the Financial Reporting framework for financial institutions across the EU.
The EBA dashboard confirms the positive trend of EU banks' capital positions, with the Common Equity Tier 1 (CET1) ratio reaching 12.1 per cent in Q3 2014 (11.8 per cent in Q2). This is the highest level since 2009 and it was driven by an increase in retained earnings and capital issuances that outpaced a more modest growth of RWAs. The levels of non-performing loans remained stable, but still generally very high, despite divergences across banks, thus stressing the need for continuous monitoring of credit quality, accompanied by consistent transparency of banks' exposures.
Profitability levels remain volatile and predominantly at low levels throughout the sector. Returns continue by and large to be subdued, being severely affected by the weak macroeconomic environment, the clean-up of some major banks' balance sheets, as well as by litigation costs. Profitability dispersion across banks and jurisdictions is material, but continues to show a narrowing trend throughout 2014.
The dashboard also shows that balance sheets' structures continue to shift towards less indebtedness with the loan-to-deposit ratio at an all-time low of 109.3 per cent. Similarly, share of customer deposit to total liabilities is at 49.2 per cent, a record high for the available data. Total assets are also on the rise.
The risk dashboard is part of the regular risk assessment conducted by the EBA and complements the semi-annual Risk Assessment Report.