Euro zone banks avoided being caught up in last month's global banking volatility, showing the benefits of building up capital strength, while producing some of their strongest profitability figures in years. But the data also showed a fractional weakening in liquidity indicators, which have come into focus this year following U.S. regional bank failures and troubles at Credit Suisse. The liquidity coverage ratio (LCR), which measures the quantity of highly liquid assets held by a bank which would allow it to withstand a 30-day period of significant liquidity stress, dropped to 161.46% in the fourth quarter from 162.03% the previous quarter. For global systemically important banks in the euro zone, the LCR fell to 145.91% at the end of last year, from 146.7% in the third quarter. The largest banks supervised by the ECB made a return on equity of 7.68% in the final quarter of last year, the highest figure on record since the ECB started compiling such statistics in 2015 and up from 6.70% a year earlier.
The banks had a common equity tier 1 capital ratio of 15.27%, up from 14.74% three months earlier and well above all regulatory requirements. Tier 1 capital is the core measure of a bank's financial strength.
With the ECB raising rates by a record 350 basis points since July, banks have enjoyed higher margins on lending in the past year but also faced the risk that borrowers could struggle to repay loans.
However, with the euro zone economy skirting recession, that
did not seem to be an issue, as the ratio of non-performing
loans hit an all-time-low of 2.28% in the last quarter of 2022.
This might not please the ECB, which has long complained
that banks are too slow in recognising problems and need to be
more cautious in a low-growth environment.
(Reporting by Balazs Koranyi and Valentina Za. Editing by Jane
Merriman)
