Between mid-2020 and mid-2021, banks’ capital and liquidity strengthened despite the Covid-19 pandemic, with the average CET1 ratio at 15.5% of total banking assets (up from 14.7% in mid-2020), when applying the full set of Basel III prudential rules, according to the 2021 edition of the industry transparency exercise published by the European Banking Authority (EBA) on Friday 3 December.
In fact, the quality of assets has improved overall. The ratio of non-performing loans (NPLs) decreased further to 2.3% (from 2.9% in mid-2020), thanks in particular to several large NPLs securitisations.
However, the ratio of non-performing loans to the sectors most affected by the pandemic has increased, by 25% for the restaurant sector and by 14% for the cultural sector. The most affected countries are Cyprus, Greece, Croatia and Malta.
The EBA also warns against the deterioration of the quality of loans with a public guarantee and/or payment moratorium. Accelerating hikes in house prices and the recent emphasis by banks on mortgage lending could become a source of vulnerability in the future, it adds.
ESG risks. The European authority also notes that progress has been made in taking into account environmental, social and governance (ESG) risks. The share of ESG bonds in total bank issuance has increased to about 20% of total bank investments by mid-2021, it notes. And banks have started to integrate ESG risks into their risk management policies, although the lack of available data hinders this process.
However, there is still significant progress to be made, the EBA notes, in areas such as data, business strategies, internal governance, risk assessment and monitoring.
See the EBA report: https://bit.ly/3xRCAST (original version in French by Mathieu Bion)