Eba: stable European banks, file profitability and nonetheless excessive liquidity | EUROtoday

Listen to the audio model of the article

The European banking system is stable, properly capitalized with the CET1 capital ratio at an all-time excessive of 16.1% (Italian banks are at 16.3%), it has excessive profitability near all-time highs, with an annualized Roe of 10 .9% as of June 2024. And liquidity additionally continues to be excessive: the liquidity protection ratio is at 163.2%, solely barely down from 168.3% in December 2023. However, for the EBA, the European Banking Authority, these are usually not instances to be calm about.

The fears

European banks are uncovered to “significant geopolitical risks”, marked by rising volatility, “growing cyber threats, where fraud has increased significantly”, which require explicit consideration in managing operational dangers, in a context of “high macroeconomic uncertainty” , warns the EBA. Exposures to non-banking monetary establishments are additionally rising, reaching nearly 10% of whole property (Italy on common with 10.4%), a share not very excessive however definitely not low. And bodily and transition dangers shouldn’t be underestimated, akin to “green washing” for reputational danger, that are all linked to local weather change and extra frequent excessive occasions, and which symbolize a hazard for the banking system.

This is what the EBA highlighted yesterday in its autumn danger evaluation report (RAR). The report was accompanied by the publication of the tenth EU-wide transparency train of 2024, with detailed data (9,500 per establishment), in a comparable and accessible format, for 123 banks (of which 12 Italian) in 26 European Union nations (EU) and the European Economic Area (EEA).

Direct exposures

The EBA has highlighted geopolitical dangers, emphasizing direct exposures to high-risk nations (that are nonetheless modest, equal to 500 billion or 2.5% of banks’ whole property) but in addition oblique exposures by way of the sectors extra susceptible to geopolitics. Technological advances and digitalisation have elevated the significance of operational resilience, in a troublesome context as a result of IT and cyber dangers have grow to be extra evident and extra frequent. The EBA has devoted a spotlight to synthetic intelligence, which is spreading amongst banks however not with out dangers.

Slow progress

European banks, the report highlights, proceed to function in a context of sluggish financial progress. Loans are rising slowly and the standard of banks’ property has deteriorated barely. Non-performing loans (NPLs) grew by 3.4% in comparison with final yr and stood at 373 billion euros, equal to 1.9% of whole loans, pushed by defaults within the sector of non-financial firms, particularly between SMEs and business actual property. Credit danger, warns the EBA, “represents a greater threat to smaller institutions”.