Updated EBA Risk Dashboard confirms continued improvements in EU banks asset quality but also low profitability levels

The European Banking Authority (EBA) published today its Risk Dashboard, which summarises the main risks and vulnerabilities in the EU banking sector based on end 2018 data. In comparison with 2017, the Dashboard confirms improved asset quality, stable capital ratios, but profitability still below long-term sustainable levels.

European banks' capital ratios remain high with a slight decrease when compared to 2017. The CET1 (transitional) ratio was 14.6% in December 2018 (14.9% in 2017). The decrease is driven by an increase in the total risk exposure amount. CET1 ratios remained above 11% for all countries in the sample. The fully loaded CET1 ratio also showed a decrease and stood at 14.4% compared to 14.6% in 2017.

The quality of EU banks' loan portfolio continues to improve. In 2018, the ratio of non-performing loans (NPLs) to total loans kept the downward trend and reached a value of 3.2%, showing its lowest level since the NPL definition was harmonised across the EU/EEA. The NPL decline is attributed both to the upward trend of total loans granted and to the steady decline in the amount of non-performing loans (658 EUR billion in Q4 2018). However, dispersion across EU/EEA countries remained high, and economic slowdown could make further improvements harder to achieve. The coverage ratio was 45.1% in Q4 of 2018, compared to 44.6% in Q4 of 2017.

Profitability showed only a small sign of improvement. The RoE increased to 6.5% compared to 6.0% in 2017. The heatmap shows that the share of total assets held by banks with RoE above 6% is 61.6%, which is an improvement compared to 46.7% in 2017. The dispersion narrowed in 2018, with the difference between the upper quartile and the lower quartile at 6% when compared with 7.4% in 2017.

The Leverage ratio remains stable. The leverage ratio (fully phased-in) in Q4 2018 stood at 5.3%, a marginal decrease from 5.4% in Q4 2017. The asset encumbrance ratio remained stable compared to 2017. The liquidity coverage ratio (LCR) continued its upward trend reaching 152%.

Notes to editors

The figures included in the Risk Dashboard are based on a sample of 150 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 https://www.eba.europa.eu/risk-analysis-and-data).