EBA finds further increase in EU banks capital ratios in 2015

In its risk dashboard for the EU banking sector published today, the European Banking Authority (EBA) gives an overview of the health of EU banks for the second quarter of 2015. While capital ratios have increased, the quality of loan portfolios remains weak, but EU banks profitability has increased compared to 2014. The EBA risk dashboard summarises the main risks and vulnerabilities in the banking sector on the basis of the evolution of a set of key risk indicators across the EU.

EU banks' capital ratios have increased further to 12.5% on average, 40 bps higher than in the previous quarter, with some dispersion across countries. This is due to a growth in capital as well as decreasing risk weighted assets, primarily its credit and market risk components.

The quality of banks' loan portfolios slightly improved, but remains weak on average. The ratio of impaired and past due loans to total loans decreased from 6.6% in the previous quarter to 6.4%, driven by a decline of the volume of impaired and past due loans. The coverage ratio reached a new height with a ratio of 47.2%.

Banks's profitability has remained subdued but improved compared to last year. Annualised return on equity is 7.8%, which is above Q2 2014 (5.7%) and Q2 2013 (7.6%). The cost-to-income ratio has continued its decreasing trend and is now at 59.5% (61.8% in Q1 2015).

The loan-to-deposit ratio has remained stable at 108.6%. After its decrease in the last quarter, the ratio of customer deposits to total liabilities grew to an all-time high of 50.4% from 47.6% in the previous quarter, with significant dispersion across countries (from about 30% to more than 90%).

The EBA risk dashboard is part of the regular risk assessment conducted by the EBA and complements the semi-annual risk assessment report. It is based on Q2 2014 data and takes into consideration the evolution of a set of key risk indicators from 55 EU banks that the EBA has been collecting on a quarterly basis since 2009.