EU/EEA banks: benefits from rising interest rates are stabilising, the EBA says

The European Banking Authority (EBA) today published its Q2 2023 quarterly Risk Dashboard (RDB). Banks’ profitability and capital ratios increased further, while macroeconomic uncertainty weighed on loan growth.

• Macroeconomic and geopolitical uncertainty remains high. The European Commission revised its economic outlook downward in the summer. The less positive growth outlook for China creates additional risks for the European economy. Newly introduced banking taxes have increased market uncertainty.
• The European Union and European Economic Area (EU/EEA) banks maintained robust capitalisation levels in the second quarter. The average common equity tier 1 (CET1) ratio increased by another 20bps on a fully loaded basis, reaching a historical high of 15.9%. The liquidity coverage ratio (LCR) normalised further from 162.8% to 159.9% QoQ, driven by the targeted longer-term refinancing operations (TLTRO) III repayment in June. The net stable funding ratio (NSFR) increased to 126.5% (125.9% in Q1).
• Banks’ consideration of sustainability aspects is also reflected in their funding. The share of green bonds increased for non-preferred senior bonds and remained stable for covered and preferred senior debt.
• Slower economic growth weighs on loan growth. Outstanding loans towards households and non-financial corporates were flat on a quarterly basis. Asset quality remains robust on average, although a few countries reported an increase in non-performing loans (NPL) volumes and data indicates that for some portfolios, asset quality could deteriorate faster going forward.
• Return on Equity (RoE) increased further in the second quarter to 10.8% from 10.2% in Q1, almost solely driven by the increase in net interest income. Banks’ net interest margin (NIM) increased further, yet the quarterly growth rate was slower than in previous quarters.
• Operational risks remain a key concern. Key risk drivers include ICT and cyber related risks. On anti-money laundering (AML) related shortcomings, the EBA’s EuReCa data shows that competent authorities reported 143 serious deficiencies in 57 institutions between June and August.

Notes to editors

Key indicators have been visualised in a dynamic way. To facilitate the navigation, here is the full list of key indicators that you can find in the graphs:

• Slide 1: CET1 ratio (fully loaded) on new time high of 15.9% [DOWNLOAD DATA]
• Slide 2: Only small MREL shortfall on EU/EEA level, but wide dispersion among countries [DOWNLOAD DATA]
• Slide 3: Stable NPL ratio, but potential asset quality deterioration going forward [DOWNLOAD DATA]
• Slide 4: Banks’ return on equity (RoE) increased further [DOWNLOAD DATA]
• Slide 5: Net interest income rose by 20% on a yearly basis and by 2.5% on a quarterly basis [DOWNLOAD DATA]
• Slide 6: 143 serious AML/CFT deficiencies in 57 institutions reported between June and August as well as 50 ‘corrective measures’ [DOWNLOAD DATA]

The figures included in the Risk Dashboard are based on a sample of 164 banks, covering more than 80% of the EU/EEA banking sector (by total assets), at the highest level of consolidation, while country aggregates also include large subsidiaries (the list of banks can be found here).