Current situation of the EU banking sector and exposure to the Ukraine war
The EBA Risk Dashboard quarterly report summarizes the main risks and vulnerabilities in the banking sector in the European Union (EU) by looking at the evolution of Risk Indicators among a sample of banks across the EU. In this occasion it provides a special feature on the Impact of the Russian invasion of Ukraine on the EU banking sector.
Key findings of the report are the following:
- Banks maintain strong capital levels and abundant liquidity: The average CET1 ratio was 15.4% on a fully loaded basis by the end of 2021.
- Asset quality improved with banks reporting a lower NPL ratio of 2.0%. However, loans under current moratoria stood at EUR 12bn, down from EUR 50bn in Q3 2021 and asset quality remains a concern looking forward.
- Profitability stabilized at levels higher than in the pre-pandemic period: Return on equity was reported at 7.3% (7.7% in Q3 2021 and 5.7% in Q4 2019).
- The sanctions imposed on Russia represent a high operational risk (including legal and reputational risks for banks).
- Growing trend towards digitization and closure of physical branches is causing concern about higher risk of cyberattacks and financial exclusion in all countries (which could damage the reputation of banks).
- Banks’ direct asset exposures to Russia and Ukraine are concentrated in a few countries and in a limited number of banks. Austrian, French and Italian banks reported the highest volume of exposures towards Russian counterparts. Austrian, French, and Hungarian banks towards Ukraine. Only Austrian and Hungarian banks reported more than 2% of their total exposures towards both.
- More than 80% of the total exposure were loans and advances, mainly towards non-financial corporates, in the manufacturing (EUR 16 bn), mining and quarrying (EUR 9 bn) sectors.
- Deposits from Russian and Ukrainian counterparties amount to a combined volume of around EUR 82 bn.