Paris, Dec. 9 (EFE). – The profitability of European banks, which recovered from Covid very quickly at the beginning of 2021, continued to improve in the first part of this year, but the European Banking Agency (EBA, in its English abbreviation) has doubts about future developments, especially due to the economic slowdown.
In its annual transparency exercise published on Friday, the European Business Agency reports that the return on capital was 7.8% in the second quarter of 2022 for the 122 entities from the 26 countries that are part of its sample, up four-tenths from the same period last year. .
Another seemingly paradoxical development in the European banking sector is late payments.
On the one hand, the non-performing loan ratio was reduced to 1.8% in the second quarter of 2022 (compared to 2.3% in the same period in 2021), while those subject to special control, that is, those at risk of becoming delinquent, increased.
And its rate increased from 8.8% to 9.5% in those twelve months, the highest percentage since the start of the historical series in 2018, and reached a volume of 1.45 trillion euros.
The decline in the quality of loans in France and Germany
The rate of progress of these loans, which banks put under control due to the risk of their default, reached 14%, and 80% of them are explained by only two countries, France and Germany.
The overall improvement in the profitability of the 122 banks in the sample this year was possible due to the growth of loans and interest margins, as well as the lifting of restrictions that had been imposed during the period of covering dividends, which made it possible to return to rates of distribution of 50% of profits.
Spanish banks are in the group of the most profitable among the major European countries, with profitability just over 10% in the second quarter, although down from where it was a year ago.
They remained generally ahead of Italy, which remained below that symbolic threshold of 10%, but above all above 7.4% of the Netherlands, 6.2% of France, not to mention 5.4% of Germany.
But things are changing, and the sharp economic slowdown in the European Union, with the possibility of a technical recession this winter (two consecutive quarters of lower production), raises doubts about what will happen to the profitability of the sector.
Because this slowdown will translate into less credit advances and larger losses in value. In addition, the inflationary rise may lead to an increase in the operating costs of the facilities.
This is without forgetting that the slower increase in Gross Domestic Product (GDP) along with higher interest rates would likely mean lower revenues for banks in the asset management and payment services business.
Liquidity should be less
And the EBA considers that the economic and monetary development will reduce the levels of liquidity coverage of banks, which are very comfortable, by 165.1% in the second quarter, despite its decline compared to 174.5% in June 2021.
In any case, all banks in the sample stayed above the regulatory requirement, which was 155%.
The highest quality capital ratio (CET1) and forecast of future regulatory requirements (“fully loaded”) fell by half a percentage point in twelve months to remain at 15%.
In terms of assets, the 122 entities subject to examination by the EBA declared a total of 27.7 trillion euros in assets in June, 5% more than they had twelve months ago, and this is thanks above all to the expansion of the market for loans, advances and time deposits. EFE
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