29 October 2013
The European Banking Authority (EBA) publishes today its first risk dashboard, summarising the main risks and vulnerabilities in the banking sector in the European Union (EU). The dashboard looks at the evolution of Key Risk Indicators (KRI) from 56 banks across the EU and points to significant improvements, particularly in terms of strengthened capital base.
After the past two years of repair, the overall conditions of EU banks have improved, in spite of the weak and uneven recovery across the EU, which still leaves the sector fragile. In particular, data in the EBA dashboard illustrates that capital positions have been significantly strengthened and that funding conditions have recovered. However, the latter remain vulnerable to adverse shocks, with many banks relying on central banks' funding.
Asset quality remains the main source of concerns, in light of the weak macroeconomic scenario across the EU. The ratio of impaired loans and past due loans (>90 days) to total loans was found to have increased. Profitability has shown some signs of recovery, but Return on Equity (RoE) remains at low levels.
Shifts in the balance sheet structure of EU banks, as well as progress in deleveraging, are also highlighted by the EBA dashboard. Further changes in banks' balance sheets are still expected, as business models will have to adapt to a new regulatory environment.
The EBA risk dashboard is part of the regular risk assessment conducted by the EBA and complements the Risk Assessment Report. It is based on Q2 2013 data and takes into consideration the evolution of a set of Key Risk Indicators (KRI) from 56 EU banks that the EBA has been collecting on a quarterly basis since 2009.