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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

Executive summary

EU banks on average have continued to

strengthen their capital position.

The weight-

ed average common equity tier 1 (CET1) ra-

tio was 12.5 % in June, 40 basis points (bps)

higher than in December 2014. The strength-

ening of EU banks’ capital position continues

to be driven more by an increase in capital

rather than decline of the denominator. Dur-

ing the first half of 2015 the amount of CET1

capital grew by approximately 6.1 %. In the

same period, risk‑weighted assets (RWAs)

increased by approximately 2.5 % (

1

).

The first half of 2015 confirmed modest

loan growth in the EU banking sector.

As-

set volumes, including loans, have continued

a trend that had already started last year.

Loans are growing at a faster pace than as-

sets (3.6 % versus 1.4 %, both YtD).

EU banks show significant direct exposures

to non‑bank financial intermediaries.

Ac-

cording to data collected from 184 institutions

(169 banks and 15 investment firms) the expo-

sure is about EUR 1 trillion. The data shows

that banks’ average individual exposure to

non‑money market funds is around 29 % and

to UCITS money market funds around 6 % of

their eligible capital after credit risk mitiga-

tion and large exposures exemptions.

EU banks’ exposure towards emerging mar-

ket (EM) countries was about EUR 2.3 trillion

in June 2015.

Further depreciation of their

currencies could have a direct negative im-

pact on EU banks’ exposures, by triggering

defaults and through negative effects on rev-

enue from business with clients in EM coun-

tries, as well as indirect effects through, for

example, commodity exposures.

(

1

) The sample of banks in this report is smaller compared

to the one used in the EBA’s 2015 Transparency Exercise.

Banks saw further improvements in asset

quality, though impairment ratios remain

high.

The ratio of impaired and past due

(> 90 days) loans to total loans decreased to

6.4 % in the first half of 2015 compared to 7 %

at the end of 2014. Trends in asset quality dif-

fer significantly among countries and banks.

Banks’ expectation of further gradual im-

provements in asset quality strongly depends

on the further economic recovery, including

potentially negative impacts from develop-

ments in China and other EM economies.

Coverage ratios have increased in the first

half of the year.

The effect was driven by

a reduction in the total impaired gross loans.

Levels of loan provisions are likely to undergo

changes in the future due to the implementa-

tion of IFRS 9.

Volatility in banks’ funding spreads demon-

strates an overall fragile state of financial

markets.

Except for periods of heightened

general market stress — mainly during the

peaks of the Greek crisis — no major con-

straints could be observed in the issuance

activity for secured and unsecured instru-

ments. In contrast to these instruments,

issuance volumes of subordinated funding

were below the levels of the same period in

the previous 3 years.

Even at the peak of the Greek crisis no major

volatility of customer deposit volumes could

be observed outside Greece.

Though inter-

est rates for deposits have been at long‑time

lows, banks have even been able to increase

volumes of customer deposits.