Banks in the European Union and European Economic Area notched up a mixed performance across key financial indicators, with notable stability in some areas and slight declines in others. The European Banking Authority its quarterly risk dashboard for Q2 2024 on 19 September 2024, providing aggregated statistical data for the largest institutions within the EU and EEA.
Return on equity and net interest margin
The return on equity for EU/EEA banks in Q2 2024 remained largely unchanged on an annual basis, reaching 10.9%, which was 10 basis points lower than the same period in 2023. However, on a quarterly basis, RoE saw a 30bps increase. This improvement was primarily attributed to a rise in other operating income, said the EBA.
The net interest margin experienced a slight quarterly decrease, falling from 1.69% in Q1 2024 to 1.68% in Q2 2024. Despite this minor decline, the net interest margin was still above its Q2 2023 level of 1.60%. The decrease in net interest margin suggested it may have peaked in the first quarter of 2024, with volume growth insufficient to offset the negative impact of the lower margin. Consequently, net interest income declined slightly on a quarterly basis, explained the EBA.
Capital and liquidity ratios
The common equity tier 1 (CET1) ratio, a key measure of bank solvency, improved on a fully loaded basis, rising by 10bps to reach 16.1% in Q2 2024. This reflects a steady strengthening of capital positions among EU/EEA banks.
Liquidity indicators also showed positive trends. The liquidity coverage ratio increased from 161.7% in Q1 2024 to 163.2% in Q2 2024, while the net stable funding ratio rose from 127.3% to 127.8% over the same period. The EBA noted a shift in the composition of assets within the liquidity coverage’s numerator, with a decline in the share of cash and reserves held by banks and a corresponding increase in central government assets.
Loan growth
Lending activity showed modest growth during the second quarter, with loans to households and non-financial corporates increasing slightly. Sovereign exposures rose by approximately €200bn or 5.5%, since the end of 2023. This increase was accompanied by a higher proportion of exposures recognised at fair value and an increase in shorter-term maturities. These changes suggested a shift in risk management strategies among EU/EEA banks regarding their sovereign debt portfolios.
Non-performing loans
The non-performing loan ratio remained steady at 1.9% in Q2 2024, showing no change from previous quarters. However, the EBA pointed out that there were material divergences across segments, with some sectors potentially experiencing higher levels of non-performing loans compared to others.