EU watchdog says bank capital rising, profitability falling

[LONDON] Banks in the European Union continue to build up capital levels to well above mandatory minimums, but profitability remains poor and souring loans are a concern, the bloc's banking watchdog said on Wednesday in a regular quarterly update.

The European Banking Authority (EBA) said the average common core equity to risk-weighted assets ratio rose by 60 basis points, quarter-on-quarter, to 13.6 per cent in the fourth quarter of 2015.

The rise was due to increasing actual amounts of capital and ditching risky assets.

The so-called fully loaded ratio, which factors in all changes in capital requirements now being phased in, was 13 per cent.

The regulatory minimum for the biggest banks is about 9 to 9.5 per cent but markets and regulators have pushed for higher levels as reassurance.

The average return on equity, a key measure of profitability, fell to 4.7 per cent for 2015 overall, down 1.7 percentage points from third quarter data and a far cry from the 20 per cent or higher seen before the 2007-09 financial crisis.

The ratio of non-performing loans or where the borrower has missed a payment, was 5.8 per cent, 10 basis points below third quarter levels.

"Notwithstanding the improvement, credit quality and the level of legacy assets remain a concern," EBA said in a statement.

The EBA figures are based on a sample of 154 banks.

REUTERS