BANKING SECTOR PERFORMANCE

The data contained in this publication has been compiled from publicly available information released by the European Central Bank, European Commission, Eurostat, the European Banking Authority, 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.

Due to rounding, figures presented in the charts throughout this document may not sum.



Bank capital

European banks have continued building a solid capital position and strengthening their balance sheets. The recapitalisation effort that European banks have made following the 2008 financial crisis makes the European banking sector more resilient and robust. Capital has continued increasing, with the core equity Tier 1 ratio of EU banks on a fully loaded basis, which includes only capital of the highest quality, at 13.8% in June 2017, 100 basis points more than the previous year and double the same ratio in December 2011.

Banks in the European Union have reduced the original total capital shortfall by more than €500 billion from 2011 mainly by raising new capital and retaining earnings. Tier 1 and total capital also continue showing a positive trend, doubling the same ratio in 2011.

In 2017, for the first time, the shortfall of all categories of capital was practically zero. All banks met the liquidity coverage ratio above the minimum. Also, the leverage and NSFR shortfalls continued to decrease to €2 billion and €51 billion, respectively.

Data and assumptions from EBA and EBF
*Including G-SIB surcharge  **Overall shortfall group 1 and group 2  *** Assumption of weights: 80% G1; 20% G2

Bank funding

The share of deposit liabilities over total assets increased in 2017 from 51.3% to 53.4%, in line with the rising trend since 2007 (47.3%) that reveals the shift towards greater reliance on deposits as a source of funding.

The rise in the share of non-banks’ deposits to total assets has continued, rising from 36.8% in 2016 to 38.1% in 2017.

The country breakdown for total deposits shows that domestic deposits were equivalent to less than half of the assets in Denmark, Ireland, Sweden, Finland, the UK, Luxembourg, Malta and the Netherlands. 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 the banking sector’s assets were Bulgaria, Slovenia, Slovakia, Lithuania, Romania and Portugal; all of which had deposits equivalent to 70% or more of assets.

Assets

The amount of total assets held by EU banks contracted for a third consecutive year in 2017. This time by approximately €300 billion from the previous year amounting to €42.89 trillion (€30.4 billion in euro area and €12.5 billion in non-euro area). While there was a modest gain in the total assets in the non-euro area (2.42%) this was offset by a drop (1.93%) of total assets held by banks in the euro area countries.

Considering the country breakdown, the country with the strongest boost in absolute terms was Czech Republic with €53.6 billion (23.9%). Among the four largest European countries only France registered a positive result in their stock of assets which increased by 1.5%, Germany, Italy, and Spain showed a reduction of 1.1%, 5.3% and 0.2% respectively. The countries with the most significant reductions in their stocks of assets were Greece (-14.3%) and Finland (-17.4%).

Bank profitability

With the ECB maintaining its ultra-low interest rates, profitability remains a key challenge facing European banks. The return on equity (ROE), a key indicator to assess the bank sector’s attractiveness for investors has been slowly recovering. The ROE of European banks was 5.6% in 2017 for EU 28, practically half of the 10.6% registered in the burst of the financial crisis, but the highest since 2007.

While most countries have a positive ROE, Denmark (10.8%), Sweden (10.9%), Romania (11.7%), Czech Republic (13.0%) and Hungary (14.5%) registered a double-digit ROE. Reflecting on the national breakdown, the average ROE of Cyprus, Greek and Portugal banks were the only three with negative results at -11.5%, -1.3% and -0.8% respectively. The difference between the highest (Hungary) and lowest (Cyprus) ROE was 26 percentage points in 2017, far from the 101.6 recorded in 2013 (11.4% in Czech Republic and -90.2% in Slovenia).

The ROE across EU countries diverged after 2007 signaling 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 8.3 in 2014, 7.4 in 2015, 5.7 in 2016 and further into 2017 to 5.1, the closest so far to the 4.5 seen in 2007 before deviation started.

In the largest EU economies, the ROE in 2017 was 8.8% in the Netherlands, 7.1% in Italy, 7.0% in Spain, 6.4% in France, 4.3% in the UK and 2.9% in Germany.

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