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E U R O P E A N B A N K I N G A U T H O R I T Y

10

Introduction

This is the ninth report on risks and vulner-

abilities of the EU banking sector published

by the European Banking Authority (EBA). It

describes the main developments and trends

that have affected the EU banking sector

since the end of 2015 and provides the EBA’s

outlook on the main micro-prudential risks

and vulnerabilities looking ahead (

1

). For the

first time, the December 2016 risk assess-

ment report (RAR) is complemented with the

EBA’s EU-wide 2016 transparency exercise.

Chapter 1 of the RAR looks at the macro-

economic environment and market dynam-

ics. Chapter 2 focuses on the assets side,

explaining the trends in asset volumes and

dynamics of asset quality. Chapter 3 consid-

ers the liability side, presenting the evolution

of the funding mix and its conditions. It also

discusses deposit trends and highlights re-

maining structural fragilities and challenges

in funding markets. Chapter 4 provides an

overview of the banks’ capital positions and

related trends. Chapter 5 describes banks’

income and profitability, and the significant

headwinds and future evolution. Chapter 6

touches on aspects of banks’ operational and

ICT-related risks, as well as business con-

duct and litigation issues. Finally, Chapter

7 presents policy implications and possible

measures to address the prudential issues

mentioned in the previous chapters.

(

1

) With this report, the EBA discharges its responsibil-

ity to monitor and assess market developments and pro-

vides information to other EU institutions and the general

public, pursuant to Regulation (EU) No 1093/2010 of the

European Parliament and of the Council of 24 November

2010 establishing a European Supervisory Authority (Euro-

pean Banking Authority), and amended by Regulation (EU)

No 1022/2013 of the European Parliament and of the Coun-

cil of 22 October 2013.

The RAR is based on qualitative and quanti-

tative information collected by the EBA. The

report’s main exclusive data sources are:

• EBA supervisory reporting,

• the EBA RAQ for banks and market ana-

lysts (

2

), and

• micro-prudential qualitative information

and supervisory college information-

gathering.

The RAR builds on the supervisory report-

ing data submitted to the EBA on a quarterly

basis by competent authorities for a sample

of 198 banks from 29 European Economic

Area (EEA) countries (157 banks at the high-

est EU level of consolidation). Based on total

assets, this sample covers about 85% of the

EU banking sector. This information, and the

historical analysis contained in this report,

is available from December 2014, when the

EBA started collecting data based on the

EBA’s implementing technical standards

(ITS) on supervisory reporting for the above-

mentioned extended sample of banks. The

risk indicators are in general based on an un-

balanced sample of banks, whereas charts

related to the risk indictors’ numerator and

denominator trends are based on a balanced

sample. The text and charts in this report

refer to weighted average ratios if not other-

wise indicated (

3

).

(

2

) These questionnaires are conducted by the EBA on

a semi-annual basis, and addressed to banks and/or their

financial supervisors as well as market analysts. Answers

to the questionnaires were provided by 38 European banks

(Annex I) and 21 market analysts in October 2016.

(

3

) There might be slight differences between some of the

risk indicators covered in the Q2 2016 version of the risk

dashboard, published on 30 September 2016, and this re-

port due to data resubmissions by banks. The EBA risk

dashboard is available online

(https://www.eba.europa. eu/risk-analysis-and-data/risk-dashboard)

. The annex to

the risk dashboard also includes a description of the risk

indicators covered in this report and their calculation,

and further descriptions are available in the EBA’s guide

to risk indicators

(http://www.eba.europa.eu/risk-analy- sis-and-data/risk-indicators-guide)

.