EU/EEA banks’ profitability is holding up well despite declining net interest margin

The European Banking Authority (EBA) today published its Q 3 2024 Risk Dashboard (RDB), which discloses aggregated statistical information for the largest EU/EEA institutions. EU/EEA banks’ return on equity (Ro E) increased slightly on a quarterly basis by 20 bps to 11.1% (unchanged on a yearly basis). The increase was driven by the positive contribution of other operating income, and the decline in all major expense components. Net interest income and net trading income negatively contributed to the change in ROE. The net interest margin (NIM) is slightly declining from the historical peak in Q 1 by 3 basis points to 1.66% (see Fig. 1). The cost of risk continued its decline, and it stands now at 47 bps. After the modest recovery observed in the first half of the year, outstanding loans slightly decreased driven by lower loans to non-financial corporates (NFC; -1.6%), while loans towards households remained stable over the quarter. Asset quality remains stable, with the non-performing loan (NPL) ratio slightly increasing by 2 bps to 1.88%. The share of Stage 2 loans stands at 9.2%, after it marginally decreased over the quarter (9.3% in June 2024) (see Fig. 2). Based on the results of the EBA’s recently conducted risk assessment questionnaire, nearly half of the banks expect a deterioration in asset quality over the next 6 to 12 months, particularly in the consumer credit, SME, and CRE sectors. The share is, however, lower than in previous surveys. On a fully loaded basis,...