EBA欧洲银行-EBA-Dashboard-Q2-2019_39页_4mb

EU Banking Sector Risk Dashboard Summary - Q2 2019

Core Content Overview

This summary provides an analysis of key risk indicators (RIs) for the EU banking sector as of Q2 2019, including solvency, asset quality, profitability, liquidity and funding, and operational resilience. The data is based on a sample of 183 European banks, including 36 subsidiaries, and highlights trends, dispersion, and changes over time.

Main Risks and Vulnerabilities

1. Asset Quality

• Risk Level: ↑ (increasing)
• Description: Asset quality has continued to improve but at a slower pace. The non-performing loan (NPL) ratio declined to 3.0% from 3.1% in the previous quarter. The decline in Q2 was driven by a reduction in NPLs, not by an increase in total loans.
• Short-term Outlook: If economic conditions do not improve and political uncertainty remains high, asset quality could worsen. NPL disposal volumes may decrease due to lower investor interest, and new lending could be impacted by economic conditions and asset quality deterioration.

2. Market Risk

• Risk Level: → (stable)
• Description: Financial markets have remained volatile, influenced by economic and political uncertainty. High asset prices may not be justified by fundamentals and are influenced by accommodative interest rates. There have been instances of significant outflows from investment funds, indicating risks from illiquid markets.
• Short-term Outlook: Continued economic and political uncertainty may persist, and further monetary policy easing could increase investor risk appetite and yield-seeking strategies.

3. Liquidity and Funding

• Risk Level: ↓ (decreasing)
• Description: The loan-to-deposit ratio for households and non-financial corporations decreased to 116.4% from 116.8%. The liquidity coverage ratio also declined to 149.2% from 152.6%, ending a previous upward trend.
• Short-term Outlook: Declining yields and spread compression may encourage the build-up of MREL buffers. Banks might apply negative interest rates or charge higher fees for deposits, and seek alternative market-based funding sources.

4. Profitability

• Risk Level: ↑ (increasing)
• Description: Profitability remains under pressure due to low interest rates, low margins, and competition from non-bank financial institutions and FinTech. The cost to income ratio (CIR) increased to 64.1%, with rising risk costs observed over the year.
• Short-term Outlook: Profitability is expected to remain under pressure as market rate hikes are not anticipated. Increased economic and political uncertainty could lead to higher impairments and provisioning needs, further affecting profitability.

5. Operational Resilience

• Risk Level: → (stable)
• Description: There are ongoing risks related to operational resilience, including underestimation of provisions for customer redress, breaches in AML and terrorist financing, FX loans, benchmark rate misuse, and competition law violations. ICT-related risks, such as system outages, also persist, though no major cyber-attacks have been reported.
• Short-term Outlook: The risk of sudden stress and liquidity challenges remains, and corporate governance weaknesses could be exacerbated. Banks need to focus on robust oversight and system resilience.

Key Risk Indicators (RIs)

1. Solvency Tier 1 Capital Ratio

• Weighted Average: 16.2%
• Trends:
  • 5th Percentile: Increased to 14.7%
  • 25th Percentile: Increased to 16.5%
  • Median (50th Percentile): Remained stable at 16.6%
  • 75th Percentile: Decreased slightly to 19.7%
• Key Note: The CET1 ratio was 14.6%, slightly below Q1 due to one-off changes in the reporting sample.

2. Credit Risk and NPL Ratio

• NPL Ratio: Declined to 3.0%
• Stage 2 and Stage 3 Loans: Also declined
• Sovereign Exposures:
  • Maturity >5 years: ~40%
  • Recognised at fair value: ~54%
  • Home country exposures: ~42%
  • Other EU/EEA countries: ~28%

3. Profitability

• Return on Equity (RoE): 7.0%, 20bps lower than one year ago
• Return on Assets (RoA): Continued rising trend
• Net Interest Margin (NIM): Remained stable at 1.43%
• Cost to Income Ratio (CIR): 64.1%, up from 63.8% one year ago and 66.3% in Q1 2019
• Risk Costs: Increased from 33bps in Q2 2018 to 47bps in Q2 2019, with a coverage ratio declining from 46.0% to 44.9%

4. Funding and Liquidity

• Loan-to-Deposit Ratio: Continued its declining trend to 116.4%
• Liquidity Coverage Ratio: Declined to 149.2% from 152.6%
• Negative Yields: Became more common for covered bonds and senior issuances
• Investor Behavior: Shifted slightly towards subordinated and longer-duration bonds

Key Observations

• The weighted average capital ratios have remained broadly unchanged, but the 5th and 25th percentiles continued to rise, indicating an increase in capital ratios among smaller banks.
• The leverage ratio remained stable at 5.4%.
• NPL disposal has slowed, with more liquid exposures already disposed of and lower quality NPLs remaining.
• Operational resilience remains a concern, with risks related to compliance, ICT, and governance.

Methodology and Data

• The Risk Indicators are based on the EBA's implementing technical standards on supervisory reporting.
• Traffic Light indicators reflect the trend of the KRI over the historical time series, with green for best bucket, yellow for intermediate, and red for worst bucket.
• Data Compilation: The EBA has been collecting data since 2014, which serves as the basis for the Risk Assessment Report, last published in December 2018.
• Bank Classification: Banks are categorized based on their average total assets between Dec 2014 and Jun 2019, with non-FINREP banks classified as small banks.

Conclusion

The EU banking sector shows stable solvency with slight improvements in capital ratios, improving but slowing asset quality, pressured profitability, and moderate liquidity challenges. The risk landscape remains complex, with ongoing concerns about market volatility, liquidity, and operational resilience. Continued monitoring and strategic adjustments are necessary to manage these risks effectively.