Profitability of EU banks remains resilient although the sector is confronted with materialising credit risks

The European Banking Authority (EBA) today published its Q1 2024 quarterly Risk Dashboard (RDB), which discloses aggregated statistical information for the largest EU/EEA institutions together with the Risk Assessment Questionnaire (RAQ) a bi-annual qualitative survey with banks’ expectations for future trends and developments. EU/EEA’s banks continue to benefit from wide interest margins improving further their profitability and capital position. However, credit risks have started materialising with an increase in non-performing loans during the first quarter. The majority of banks surveyed expect further asset quality deterioration in CRE, SMEs loans and consumer credit in the next 6-12 months. 

• Profitability remained resilient for EU/EEA banks in the first quarter of 2024 with a return on equity (RoE) of 10.6% (10.4% one year ago). Net interest margins further widened to 1.69% (+3bps QoQ). Amid monetary easing and rate cuts, banks expect that going forward, their interest income and overall profitability will be affected negatively.
• EU/EEA banks’ CET1 ratio remained at 15.9% in Q1 2024, almost unchanged compared to Q4 2023, and 20bp above Q1 2023. Strong organic capital growth in the last year offset increasing capital requirements (mainly due to higher countercyclical capital buffer (CCyB).
• Net stable funding ratio (NSFR) marginally increased to 127.2% while the liquidity coverage ratio (LCR) decreased over the quarter from 168.3% to 161.4%, moving back to the levels reported in Q3 2023. The latter’s composition has continued to change, with declining cash components and rising central government debt.
• EU/EEA banks  further reduced their outstanding loans to households and non-financial counterparties (NFCs), which are down by 0.2% QoQ, and driven by loans to SMEs (-0.8%) and mortgages (-0.3%). This was partly offset by growing consumer credit and commercial real estate related loans. An increasing share of banks surveyed showed their intention to increase their loan exposure across all segments, apart from commercial real estate.
• EU/EEA banks reported a notable increase in the non-performing loans (NPLs) by 2% QoQ, +EUR 7bn, with a ratio of 1.86%. The increase in NPLs was broad based, yet the biggest increase was reported for SME segment. Cost of risk of EU/EEA banks was also reported higher, at levels not seen since the pandemic in 2020. Although stage 2 allocation declined slightly, in Q1 2024 (9.4%), it remained near its highest level reported in Q4 2023 (9.6%).
• Relevance of operational risk has grown further. Risk of fraud has become the third most relevant driver of operational risk in the RAQ. Cyber risks and data security rank the highest among operational risks. Indications are that cyber-attacks have been on the rise, including successful ones, and that their sophistication is also increasing.
• The potential introduction of central bank digital currencies (CBDCs) creates concerns to the banks mainly relating to rising operational expenses and funding costs, as well as declining fee income. More than the direct effects from non-bank financial institutions, the concerns of EU/EEA banks seem to be about possible indirect connections that may influence the banking sector.

Note 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: Profitability of EU/EEA banks’ was still resilient in the first quarter of 2024, supported by further widening margins and lower DGS / resolution fund (RF) contributions [DOWNLOAD DATA]
• Slide 2: EU/EEA banks expect a slowdown in profits in the next 6-12 months amid interest rate cuts. In their assessment of central bank digital currencies (CBDCs) banks anticipate potential impact through costs and fee income [DOWNLOAD DATA]
• Slide 3: Capitalisation of EU/EEA banks remains solid as CET1 ratio, despite the slight decline, is reported close to its highest levels [DOWNLOAD DATA]
• Slide 4: EU/EEA banks’ reported ample liquidity, well above requirements. Share of cash in HQLA on a declining trend [DOWNLOAD DATA]
• Slide 5: Loan growth still subdued in the first quarter of the year. Banks expect loan growth to increase in the next 6-12 months [DOWNLOAD DATA]
• Slide 6: Asset quality deterioration gathers pace. Cost of risk rising but still at relatively lower levels [DOWNLOAD DATA]
• Slide 7: Operational risks are on the rise as cyber risks materialise with more successful cyber-attacks taking place [DOWNLOAD DATA]
• Slide 8: Majority of banks argue that direct links with non-bank financial intermediaries are of limited risks [DOWNLOAD DATA]

The figures included in the Risk Dashboard are based on a sample of 162 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).

Documents and visualisation tools

Risk Dashboard  [PDF]  [Visualisation tool]

RAQ Booklet Spring 2024 [PDF] [Visualisation tool]

RAQ statistical annex  

Risk parameters [pdf] [xls]