EU/EEA banks’ profitability is holding up well despite declining net interest margin

The European Banking Authority (EBA) today published its Q3 2024 Risk Dashboard (RDB), which discloses aggregated statistical information for the largest EU/EEA institutions.

• EU/EEA banks’ return on equity (RoE) increased slightly on a quarterly basis by 20bps to 11.1% (unchanged on a yearly basis). The increase was driven by the positive contribution of other operating income, and the decline in all major expense components. Net interest income and net trading income negatively contributed to the change in ROE.
• The net interest margin (NIM) is slightly declining from the historical peak in Q1 by 3 basis points to 1.66% (see Fig. 1). The cost of risk continued its decline, and it stands now at 47bps.After the modest recovery observed in the first half of the year, outstanding loans slightly decreased driven by lower loans to non-financial corporates (NFC; -1.6%), while loans towards households remained stable over the quarter.
• Asset quality remains stable, with the non-performing loan (NPL) ratio slightly increasing by 2bps to 1.88%. The share of Stage 2 loans stands at 9.2%, after it marginally decreased over the quarter (9.3% in June 2024) (see Fig. 2). Based on the results of the EBA’s recently conducted risk assessment questionnaire, nearly half of the banks expect a deterioration in asset quality over the next 6 to 12 months, particularly in the consumer credit, SME, and CRE sectors. The share is, however, lower than in previous surveys.
• On a fully loaded basis, EU/EEA banks’ common equity tier 1 (CET1) ratio slightly declined by10bps to 16.0% in the last quarter, remaining well above the requirements.
• The liquidity coverage ratio (LCR) and net stable funding ratio (NSFR) both declined to 161.4% and 127.2%, respectively, but remain well above minimum requirements. The share of cash and reserves in the LCR further declined in favour of sovereign exposures (see Fig. 3).

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: EU/EEA banks’ net interest margin (NIM) slightly declining in Q3 from its previous peak [DOWNLOAD DATA]
• Slide 2: NPL volume and ratio marginally increased, stage 2 volume and ratio declined [DOWNLOAD DATA | STAGE TWO DATA]
• Slide 3: Share of cash and reserves in EU/EEA banks’ high quality liquid assets further declined [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).