The European Banking Authority (EBA) warns that the energy situation has increased entities’ exposure to the sector
The energy and price crisis caused by the war in Ukraine is starting to put a dent in the solvency of the major Spanish banks which, along with the rest of the European banks, have seen their CET 1 capital ratio (the one that measures solvency ) was reduced by half a point from a year earlier until last June. This is evident from the latest report from the European Banking Authority (EBA), which has prepared its annual transparency exercise: the current capital ratio stands at 15% compared to 15.5% a year ago.
According to the Spanish financial entities, Kutxabank remains the entity leading this solvency ranking measured by the EBA, with a capital ratio of 16.6%; behind Banco de Crédito Cooperativo (12.9%), Unicaja (12.7%), BBVA (12.4%), Sabadell (12.3%), Ibercaja (12.3%), CaixaBank (12.2%) ), Santander (12%), Abanca (11.9%) and Bankinter (11.7%).
Overall, most entities have seen their solvent capital ratio fall over the past 12 months, a circumstance the European Banking Authority has linked to the energy crisis. The institution chaired by Spaniard José Manuel Campa has even warned that the energy crisis has led banks to increase their exposure to the energy sector, while also paying attention to the uncertainty surrounding the future of entity profitability, as evidenced from their annual transparency exercise.
This situation was caused by the volatility of prices in the gas and oil markets in the European Union, which left energy companies with “unprecedented” liquidity needs in the first half of the year.
The EBA has explained that the increase in risk-weighted assets (RWA) has been greater than capital generation, which has affected the ratio.
On the other hand, while the return on capital (RoE) at the banks in the sample has reached an average of 7.8%, the EBA has indicated that there is uncertainty about how profitability will evolve.
Similarly, lower gross domestic product (GDP) growth in line with higher interest rates will lead to lower revenues from payments and asset management.
In any case, the EBA has also focused on non-performing or doubtful loans (NPLs). As of June 2022, the rate stood at 1.8%, five points less than a year earlier, equivalent to 370,000 million euros. However, the regulator has warned that the percentage of loans in what is known as ‘stage 2’, when they are under special supervision or at risk of non-payment, stood at 9.5% at the end of the second quarter. This percentage is seven tenths higher than a year earlier and the highest recorded since the start of the historical series in 2018.
In concrete terms, the absolute volume of loans in the aforementioned ‘phase 2’ amounted to 1.45 trillion euros, 14% more. 80% of this increase came from French and German banks, according to the EBA.
Source: La Verdad
I’m Ben Stock, a journalist and author at Today Times Live. I specialize in economic news and have been working in the news industry for over five years. My experience spans from local journalism to international business reporting. In my career I’ve had the opportunity to interview some of the world’s leading economists and financial experts, giving me an insight into global trends that is unique among journalists.
