EU/EEA banking sector remains stable amidst evolving geopolitical challenges

The European Banking Authority (EBA) today published its Q4 2024 Risk Dashboard (RDB), which discloses aggregated statistical information for the largest EU/EEA institutions.

• EU/EEA banks reported a return on equity (RoE) of 10.5% in 2024, an increase of 10bps compared to 2023 (11.1% in Q3 2024). The return on assets for 2024 stood at 0.73%, up from 0.69% in 2023 (0.76% in Q3 2024).
• The net interest margin (NIM) decreased by 1bp to 1.66% on a quarterly basis, decreasing further from its peak level of 1.69% in March 2024. Despite the slowdown in net interest income (NII), the total income of EU/EEA banks benefited from a consistent rise in net fee and commission income (NFCI), which grew by 6.1% QoQ and 9.6% YoY (see figure 1).
• EU/EEA banks reported a quarterly increase of over 1% in loans to households and non-financial corporations (NFCs) across nearly all jurisdictions. Cash balances fell by close to 7% quarter-on-quarter (QoQ). At country level, most countries reported an increase in sovereign exposures. At EU/EEA level, they rose by more than 3% compared to Q2 2024 (EUR 118bn) to EUR 3.64tn (see figure 2).
• The asset quality of EU/EEA banks remained stable, with non-performing loans (NPLs) decreasing by 1.1% QoQ, amounting to EUR 375bn. All segments reported a reduction in NPLs, except for commercial real estate (CRE) loans with a marginal increase. Stage 2 loans rose by 2.6%, reaching EUR 1.57 trillion and accounting for 9.7% of the total loan portfolio (9.5% in Q3). The cost of risk held steady at 49 basis points, although substantial differences among countries remain.
• On a fully loaded basis, EU/EEA banks' common equity tier 1 (CET1) ratio held steady at 16.0%, a sign of the sector's strong capitalisation. Risk weighted assets increased by close to 1.1%, as a result of further increases in credit and operational risks (see figure 3).
• The liquidity coverage (LCR) and net stable funding (NSFR) ratios experienced a minor adjustment in the last quarter, and stood at 163.4% (compared to 161.5% in Q3), and 127.1% (127.2% in Q3) respectively. Both ratios were well above their minimum requirements. The loan-to-deposit ratio for households and NFCs further declined to 104.9% due to deposits increasing faster than loans over the quarter. Deposits from households and NFCs grew by 2.8% in the last quarter.

Note: Due to data resubmissions, Q3 data have been restated and, therefore, slightly adjusted compared to previous publications.