The 10th report of the European Banking Authority (EBA) on the transparency of the European banking sector, which was published on Friday 24 November, reports an improvement in the solidity of the 132 banks examined, with an average level of optimum quality capital at 14.3% at the end of June 2017, under the prudential rules currently in force, or 14.0% under the rules applicable from 2019 onwards.
This improvement is mainly down to a reduction in risk-weighted assets. The figures announced, which aim to compare the health of 132 banks from 25 countries of the EU and the European Economic Area (EEA), also show that the profitability of the banks has improved slightly compared to 2016. The average level of indebtedness with leverage ratio remained virtually unchanged, rising from 5.0% to 5.1% in one year, under the prudential rules in force.
NPL. The treatment of non-performing loans is still a major challenge and adversely affecting the viability of the banking sector. In the second half of 2017, the average weighted ratio of NPL fell in one year from 5.4% to 4.5% of bank exposures, but the existing stock is still at an historic high of €893 billion. It is shared out very differently by the member states: in a third of them, the average stock of NPL is more than 10% of total loans issued, and is highest in Greece (46%), Cyprus (42.5%) and Portugal (17%).
According to the EBA, the improvement in the quality of bank assets should be accelerated through supervisory actions and by the banks themselves drafting specific strategies.
The European authority, which will publish guidelines on the management of NPL, is involved in the Commission's work on the publication of the reference document on the creation of asset management companies (see EUROPE 11827, 11806).
Brexit. In view of the uncertainty thrown up by the negotiations underway for the withdrawal of the United Kingdom from the EU, the EBA advises the financial institutions and supervisors to set mitigation action plans in place well in advance, in order to be prepared for a no-deal Brexit ('cliff-edge event') in spring 2019. In October, it published recommendations aiming to minimise the disruption caused by the relocation of financial entities to the EU of 27 member states (see EUROPE 11882). (Original version in French by Mathieu Bion)