Over the past decade, European banks have strengthened their financial positions and resilience. Changes in the external macroeconomic environment and new risks require a forward-looking risk assessment and a continued focus on resilience.
• ECB Banking Supervision is focusing on heightened macroeconomic and geopolitical risks, climate change and the impact of digitalisation. We are taking measures to make supervision more effective and efficient.
• The structural changes and challenges that lie ahead make completing the banking union and capital markets union a key priority. This will allow European banks to provide their services to households and firms while maintaining financial stability.
1 State of the European banking sector
During the first decade of the banking union, the resilience of European banks has strengthened. Legacy risks have been reduced, banks are better capitalised, and the new institutional framework of the banking union provides better tools for preventing and managing stress situations. These are significant achievements.
At the end of 2023 their average risk-weighted Common Equity Tier 1 (CET1) ratio for banks under the direct supervision of the ECB was 15.7%, up from 13.5% in 2015. This is the highest quality of regulatory capital as it absorbs losses immediately when they occur. Banks’ fully phased-in leverage ratio has increased slightly to 5.7%, compared with 4.9% in 2016.1 Banks’ liquidity has remained well above regulatory requirements. Their average liquidity coverage ratio, which measures whether they have sufficient liquid assets to cover periods of short-term liquidity stress, stood at 164.4% at the end of 2023, while their net stable funding ratio, measuring the degree of stability of banks funding, was 126.5%. Bank profitability has also increased, largely driven by higher interest rates, with their return on equity reaching 9.3% in the last quarter of 2023. Moreover, asset quality has improved significantly over the last ten years. The non-performing loans (NPL) ratio, which was above 7% in 2015, fell to just 2.3% in the last quarter of 2023....
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© ECB - European Central Bank
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