The data has been compiled from publicly available information released by the European Central Bank, European Commission, Eurostat, the European Banking Authority, International Monetary Fund, national competent authorities and members of the European Banking Federation. Unless otherwise noted, all graphs and tables have been produced to illustrate the figures mentioned in the relevant chapters.
The recapitalisation effort that European banks have made in recent years is bearing fruit as EU banks show a solid capital position and have continued to strengthen their balance sheets making the European banking sector more resilient and robust. Figures indicate that for one more year banks continue increasing capital.
The core equity Tier 1 (CET1) ratio of EU banks on a fully loaded basis at June 2016, which includes only capital of the highest quality, is 12.8%, more than double the same ratio in 2011 and 1% more than the previous year. Banks in the European Union have reduced the original total capital shortfall ratio by more than €500 billion from 2011 mainly by raising new capital and retaining earnings. Tier 1 and total capital have also shown a positive trend practically doubling the same ratio in 2011.
Although the ratio of deposit liabilities to total assets slightly decreased in 2016 from 51.5% to 51.3%, the overall rising trend, since 2007 (47.3%), reveals bank shifts towards greater reliance on deposits as a source of funding. While the direction in trend has slightly fluctuated over the last four years it remains over the 50% mark every year.
The rise in the share of non-banks’ deposits to total assets has continued moving upwards, rising from 36.7% in 2015 to 37.2% in 2016. An upward trend since 2007 (29.1%) only falling in 2011.
The country breakdown for total deposits shows the lowest shares recorded in 2016 were in Denmark (28%), Ireland (30%), Sweden (35%) and Finland (37%). The figures continue to reflect, in part, different banking models, for example the well-developed covered bond markets in Scandinavia. Meanwhile countries with the largest shares of deposits financing banking sector’s assets were Bulgaria (71%), Slovenia (73%), Slovakia (74%) and Lithuania (75%).
The amount of total assets held by EU banks contracted for a second consecutive year in 2016. This time by €197 billion or -0.5% from the previous year amounting to €43.18 trillion (€30.9 billion in euro area and €12.2 billion in non-euro area countries). While there was a modest gain in the total assets in the euro area (0.53%) this was offset by a drop (0.46%) of total assets held by banks in the non-euro area countries, which was partly attributable to exchange rate movements.
Considering the country breakdown, the countries with the strongest boost in absolute terms were Lithuania with €2.2 billion (9.2%) and Czech Republic €17.4 billion (8.5%). The four largest European countries registered mix results in their stock of assets with France and Germany increasing by 2.2% and 1.7% respectively, Italy, practically at the same level as 2015, with a minimal 0.1% increase and Spain showing a reduction of 3.6%. The countries with the most significant reductions in their stock of assets were Greece (-8.9%) and Latvia (-7.8%).
In times of low interest rates, profitability becomes a key challenge banks face. With ECB’s ultra-low interest rates, banks in the European Union do not escape this challenge. The return on equity (ROE) – a key indicator to assess the bank sector’s attractiveness for investors – was 3.5% in 2016 for EU 28, down from the 4.3% seen in 2015. After a sharp contraction in 2008 to -1.5% from 10.6% in 2007 due to the impact of the financial crisis, the ROE of European banks has been slowly recovering with the latest setbacks in 2011 and 2012 when the ratio fell again into negative territory.
With regard to country figures, Italy (-7.74), Greece (-7.51) and Portugal (-5.53) have a negative ROE. Countries at the top of the list of European banking systems include Latvia (14.34%) and Hungary (12.13%).
The ROE across EU countries has diverged since 2007 signalling growing fragmentation particularly across the euro area. After reaching a peak in 2013 (25.8), the dispersion around the average ROE has substantially decreased falling to 7.4 in 2015 and further into 2016 to 5.7, the closest so far to the 4.5 seen in 2007 before deviation started.
European Banking Federation
The EBF is the voice of the European banking sector, uniting 32 national banking associations that together represent some 3.500 banks, employing about two million people.
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