EU banks continued to strengthen their capital ratios in the third quarter of 2017, according to EBA Risk Dashboard.

The CET1 ratio increased by 30 bps, from 14.3% in Q2 2017 to 14.6% in Q3 2017, reaching a new peak since Q4 2014.

This growth was driven by an increase of CET1 capital (mainly in capital instruments eligible as CET1 capital – share premium) and a decrease of the total risk exposures amount, mostly for credit risk.

Average CET1 ratios for all countries stayed well above 10%.

In comparison to the previous quarter, the fully loaded CET1 ratio increased by 30 bps to 14.3%.

In a similar vein, Tier 1 capital ratio and Total capital ratio experienced an overall increase of 30 bps to
respectively 16.0% and 18.9%.

European banks continued to improve the overall quality of their loans’ portfolio.

In Q3 2017, the average ratio of non‐performing loans (NPL) to total loans continued its downward trend, reaching its lowest level since Q4 2014 (4.2%).

This is the result of a decrease in the amount NPLs, as well as the higher loans volume.

This decreasing trend was observed across all banks‐size classes, in particular, smaller banks, which reduced their average NPL ratio by 67 bps to 17.0%.

Nevertheless, the widespread dispersion among the EU countries (with ratios ranging from 0.9% to 46.6%), and the still high amount of NPLs in banks’ balance sheet (EUR 854.4 bln) remain a vulnerability for the European banking sector.

The coverage ratio for NPLs was broadly stable, decreasing by 30 bps to 44.7%.

Profitability remained stable and continues to be a key challenge for the EU banking sector.

As in the first two quarters of 2017, the average return on equity (ROE) remained broadly stable, increasing from 6.9% (Q2 2017) to 7.1% in Q3 2017.

On a year‐on‐year comparison, the average ROE rose 1.7 p.p. from 5.4% in Q3 2016, mainly driven by the annual increase in net trading income (8.9% in Q3 2017).

The heatmap confirms the recent ROE’s improvement, with the asset share of banks with an ROE above 6% increasing from 43.4% in Q3 2016 to 63.2% in Q3 2017.

The dispersion among countries widened, with the ROE ranging from ‐20% to 18.1%.

Despite these recent improvements, the return on equity remains, on average, below the cost of equity.

In comparison to the previous quarter, the average return on assets (ROA) increased by 20 bps to 0.47% in Q3 2017.

Net interest income increased its share of total operating income from the previous quarter to 56.5%, but is still below the Q3 2016 level of 57.7%.

The share of net fee and commission income and net trading income rose from 27.1% to 27.7% and from 6.2% to 8.9%, respectively, on a year‐on‐year basis.

EBA Risc Dashboard