European banks benefit from the economic recovery

European banks are benefitting from the economic recovery as return on equity remaining stable between Q1 and Q2 2021.

This finding comes from the European Banking Authority’s (EBA) new Risk Dashboard for the second quarter of 2021. The report also states capital ratios remained level and there was a decline in NPL ratios.

The dashboard states RoE decreased to 7.4% from 7.7% in the previous quarter, with the lower end of the 5th percentile moving from further into negative territory. On average, banks benefitted from the economic recovery, with lower impairments and a rise in fee and commission income.

It also stated that net interest income did not have any major benefit from economic developments. There are indications of rising operating expenses as work goes back to pre-pandemic ways.

The EBA claims banks maintained strong capital levels in the quarter, with the average CET1 ratio unchanged at 15.5% on a fully loaded basis in Q2 2021. While the leverage value increased from 5.6% in Q1 2021 to 5.7% in Q2 2021 on a fully loaded basis.

In terms of the liquidity cover ratios (LCR), it remained high, despite declining in the quarter. It went from 173.6% in Q1 to 172.4% in Q2 2021.

The EBA also stated that cyber and ICT related risks are still elevated, despite no major successful cyberattack having been reported. It said that higher levels of open banking and remote working as well as an increased reliance on third-party providers, banks’ ict systems are vulnerable to major disruptions.

Find the full updated risk dashboard here.

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