EBA欧洲银行-EBA-Risk-Dashboard-Q3-2014_26页_4mb

EU Banking Sector Risk Dashboard - Q3 2014

Core Summary

This document provides an overview of the key risk indicators (KRIs) and main risks and vulnerabilities in the EU banking sector as of Q2 2014. It highlights trends in capital adequacy, credit risk, profitability, and balance sheet structure, as well as the broader risk environment.

Main Risks and Vulnerabilities

Capital

• Pillar 1 (Credit Risk): Asset quality remains a challenge, with uneven economic recovery across the EU. The credibility of risk-weighted assets is still under scrutiny despite improving capital ratios.
• Pillar 2 (Concentration Risk, IRRBB, etc.): Interest rates help maintain asset quality but reduce profitability. Loan forbearance is an increasing concern.
• Pillar 2 (Profitability): Non-performing loans remain near their peak, and interest income opportunities are limited. Legal and redress costs continue to impact profitability.
• Liquidity & Funding: Banks are increasingly relying on deposit funding and reducing reliance on public support. The unsecured funding market is improving, but vulnerability to risk appetite reversal remains.
• Funding Structure: Geographical fragmentation of funding markets and retrenchment to home markets are ongoing concerns. Business model changes and macroeconomic conditions are slowly improving.
• Regulatory Environment: Regulatory clarity is improving, but execution risks remain, especially regarding "bail in" rules and TLAC. The Basel Committee's decision on the leverage ratio has brought attention to this area.
• Fragmentation: Confidence remains low, and national regulatory initiatives continue to affect cross-border activities. Funding conditions still differ significantly between large cross-border banks and smaller banks in peripheral countries.
• Sovereign Risk: Fiscal deficits persist across the EU. Low interest rates have led to historically low sovereign yields, but public debt remains at worrying levels. Links between banks and sovereigns are still present but less pronounced.

Key Risk Indicators (KRIs) Overview

1. Solvency Tier 1 Capital Ratio

• Weighted average: Increased from 11.4% in Q1 2014 to 11.8% in Q2 2014, driven by capital issuances ahead of the AQR and Stress Test results.
• Dispersion: Remained stable, indicating continued differences in capital strength across banks.
• Trends: Capital ratios showed a slight increase in Q2 2014, with some banks showing a significant rise due to AT1 issuances.
• Country dispersion: Medians by country varied, with some countries showing lower ratios.
• KRI by size class: Larger banks showed a more pronounced increase in Tier 1 capital.

2. Total Capital Ratio

• Weighted average: Increased to 15.8% in Q2 2014, with some improvement in the numerator and denominator.
• Dispersion: Stable, with high interquartile ranges.
• Trends: The ratio increased in Q2 2014, showing some recovery from previous quarters.
• Country dispersion: Medians by country showed a range of values, with some countries still having lower ratios.
• KRI by size class: Smaller banks showed more variability in capital ratios compared to larger banks.

3. CET1 Ratio (excluding hybrids until Q4 2013)

• Weighted average: Increased to 11.8% in Q2 2014, showing improvement in capital adequacy.
• Dispersion: Continued to be high, with significant differences in CET1 ratios across banks.
• Trends: The CET1 ratio showed a slight increase, with some banks experiencing a significant rise due to capital issuances.
• Country dispersion: Medians by country showed a range of values, with some countries having lower CET1 ratios.
• KRI by size class: Larger banks generally showed better CET1 ratios than smaller ones.

4. Credit Risk and Asset Quality

• Impaired loans and Past due (>90 days) loans to total loans: Slightly decreased to 6.4% in Q2 2014, driven by both reduced impaired loans and increased total loan volume.
• Coverage ratio (specific allowances for loans to total gross impaired loans): Slightly decreased to 46.8%, with a significant increase in the share of banks with a coverage ratio below 25%.
• Accumulated impairments on financial assets to total assets: Remained stable at 12.5%, with some increase in the share of banks with impairments above 2%.
• Impairments on financial assets to total operating income: Slightly increased in Q2 2014, indicating continued pressure on profitability.
• Return on Equity (RoE): Volatile, with a decline to 5.7% in Q2 2014 after a sharp increase in Q1. Dispersion was narrow, showing a contraction in profitability distribution.
• Cost-to-income ratio: Slightly increased to 60.3% in Q2 2014, indicating ongoing cost-cutting efforts.
• Loan-to-deposit ratio: Remained nearly unchanged at 112.9%, with a small decrease in Q1.
• Debt-to-equity ratio: Slightly decreased from 16.6x to 16.1x, showing a trend toward more stable leverage.
• Off-balance sheet items to total assets: Remained stable at 21.0%, with no significant changes in the share of banks with off-balance sheet ratios above 20%.

Key Risk Indicators (KRIs) Heatmap

• Traffic light system: Used to indicate the level of risk and trend.
• Sample of banks: The heatmap includes data from various banks, highlighting the distribution of KRIs across different risk categories.
• Trends: Some KRIs showed increasing, stable, or decreasing patterns, depending on the risk category and bank size.
• Risk levels: High, medium, and low risk levels were observed, with some indicators showing medium or high risk despite recent improvements.

Conclusion

The EU banking sector showed some improvement in capital ratios and liquidity in Q2 2014, but credit risk and asset quality remain significant concerns. Profitability levels were volatile, and the dispersion of key indicators remained high, indicating ongoing challenges in the sector. Regulatory clarity is improving, but execution risks and geographical fragmentation persist. Banks need to maintain transparency and conduct thorough assessments of their asset quality to ensure long-term stability.