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 14.2% in June 2018, 40 basis points more than the previous year and more than double the same ratio in December 2011.

After reducing the original total capital shortfall by more than €500 billion from 2011 and reaching zero in June 2017, mainly by raising new capital and retaining earnings, banks in the European Union have maintained in 2018 the zero shortfall. Tier 1 and total capital also continue showing a positive trend, reaching 15.50% and 18.40% in June 2018 up from 6.80% and 8.10% respectively in 2011.

In 2018, all banks met, once more, the liquidity coverage ratio above the minimum. Furthermore, the shortfall of all categories of capital in 2018 remained at lowest levels. Also, the leverage and NSFR shortfalls continued to decrease, albeit at a slower pace, to €1.50 billion and €49.1 billion, respectively.

EBF calculations with data from EBA’s Basel III report monitoring exercise
*LCR figures from EBA report on liquidity measures **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 2018 from 53.4% to 54.2%, 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 38.1% in 2017 to 39.0% in 2018.

The country breakdown for total deposits shows that domestic deposits were equivalent to less than half of the assets in Denmark, Ireland, Greece, Sweden, Finland, France, UK, Luxembourg, Italy, 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, Croatia, Estonia, Slovenia, Slovakia, Lithuania, Poland and Romania all of which had deposits equivalent to 60% or more of assets.

Assets

The amount of total assets held by EU banks expanded in 2018 after few years of consecutive contraction. This time enlarged by approximately €500 billion from the previous year amounting to €43.35 trillion (€30.9 billion in euro area and €12.5 billion in non-euro area). The expansion came basically from gain in the total assets in the euro area countries (1.6%).

Considering the country breakdown, the country with the strongest boost in absolute terms was Finland with €176 billion (39.1%). Among the four largest European countries only France registered a substantial positive result in their stock of assets which increased by 4.2%, Italy and Spain showed a reduction of 1.3% and 2.9% respectively. The countries with the most significant reductions in their stocks of assets were Cyprus (-13.1%) and Latvia (-19.5%).

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 6.1% in 2018 for EU 28, up from 5.8% in 2017. While this is still far from the 10.6% registered in the burst of the financial crisis, it is the highest since 2007.

Reflecting on the national breakdown, all countries but Greece have a positive ROE with seven countries having a double-digit ROE led by Hungary (14.6%), Romania (13.6%) and Czech Republic (13.3%). Only Greece registered a negative result, compared to three countries in 2017, though only by a very small margin -0.3%. The difference between the highest (Hungary) and lowest (Greece) ROE was 14 percentage points in 2018, very 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 3.5 in 2018, for first time, less than the 4.5 seen in 2007 before deviation started.

In the largest EU economies, the ROE remained positive with the Spain, France and UK recording the largest improvements

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