The European Banking Authority (EBA) has released its annual risk assessment report for the European banking sector, revealing noteworthy resilience in the face of evolving risks. This comprehensive review, accompanied by the 2023 EU-wide transparency exercise, scrutinizes 123 banks across 26 nations within the EU and EEA, offering an in-depth perspective on the sector’s current state.
Key Findings include :
Post-Turmoil Resilience: Following the banking disturbances earlier this year, the EU banking sector has displayed remarkable resilience.
Strong Capitalisation: Banks maintain a robust capital position, with the average Common Equity Tier 1 (CET1) ratio reaching a record high of 16%. This strong capital base has underpinned the banks’ ability to make payouts.
Interest Rate Impact: The recent hike in interest rates has initially widened interest margins, though this trend might be at its peak, suggesting a potential shift.
Asset Quality and Risks: Asset quality remains strong, yet the sector faces emerging risks due to subdued economic growth and elevated interest rates.
Liquidity and Funding Costs: Liquidity levels are high, though they have started to normalize from the peaks seen during the pandemic. Concurrently, market funding costs have risen in tandem with interest rates, while deposit rates have remained relatively low, with potential increases on the horizon.
The 2023 Transparency Exercise: Enhancing Market Discipline
The transparency exercise forms a critical part of the EBA’s strategy to enhance market discipline and transparency in the EU financial sector. It complements the banks’ Pillar 3 disclosures under the EU Capital Requirements Directive (CRD). This exercise, which harnesses data from the European Centralised Infrastructure of Data (EUCLID) platform, encompasses over 1.2 million data points, averaging more than 10,000 per bank. It covers various aspects, including supervisory, resolution, remuneration, and payments data. This initiative grants the public broader access to essential banking and financial information across the EU
The EBA’s efforts in conducting these comprehensive assessments and transparency exercises underscore the importance of continual monitoring and adaptation in the dynamic financial landscape of the EU. The results offer valuable insights for stakeholders, highlighting the sector’s capacity to withstand challenges while also pointing out areas that require vigilance and proactive management.
Blogger and Investment Management Advisor with focus on Distressed Assets & NPL. Massimo is Chief NPL & Fintech Editor at Credit Village Magazine.