Recent data indicates an increase in capital ratios, a reduction in non-performing loan (NPL) ratios, and an equity return below the cost of equity. Key concerns for banks moving forward include asset quality and profitability as well as operational risks.

The common equity tier 1 (CET1) ratio reached a new high of 15.5% on a fully loaded basis, an increase of 40 basis points quarter-over-quarter. The leverage ratio also rose to 5.8% from 5.5% in the previous quarter.

The NPL ratio decreased by 20 basis points to 2.6%. This decline was primarily due to a reduction in non-performing loans that exceeded the decrease in total loans and advances. Both household and non-financial corporate (NFC) sectors saw improvements, although there were increases in some economic sectors like accommodation and food services (up from 7.8% to 8.4%) and arts, entertainment, and recreation (up from 6.7% to 7.2%).

EBA eligible moratoria on loans nearly halved in the fourth quarter of 2020, dropping from approximately EUR 590 billion in Q3 to around EUR 320 billion in Q4. The decline was more significant for NFC exposures than for household loans. Public guarantee schemes (PGS) for loans reached about EUR 340 billion, up from roughly EUR 290 billion in the previous quarter.

The liquidity coverage ratio (LCR) stood at 173.1% in Q4 (171.2% in Q3). The loan to deposit ratio decreased slightly from 113.6% in Q3 2020 to 112.2% in Q4, supported by an increase in client deposits from both households and NFCs. The asset encumbrance ratio remained steady at 27.9%.

Phishing attempts and other cyber-attacks are on the rise, and the increased use of remote customer onboarding along with growing participation in virtual currency transactions may expose banks to heightened risks of money laundering or terrorist financing. The risks associated with new types of misconduct, especially those linked to potential fraudulent activities related to COVID-19 support measures, continue to be a concern.