European Banking Industry

2023 Banking Health

Deposits

% Of Corporate Deposits out of Total Funding

In Europe, all deposits up to €100 000 are protected through national DGS all over the EU.

As of February 2023, yearly growth rate of deposits in European banks was still positive. This is diferent from the negative growth the US was already seeing since last year. Hovwevr flows have gotten negative in recent months. Data from march still not available.

Total Deposits	Balance (Trillions)		Growth Rates		Flows (Billions)
Date	Households	Corporate	Households	Corporate	Households	Corporate
2023-02	9.05	3.43	2.17	2.59	-11.31	-13.47
2023-01	9.06	3.44	2.74	3.27	-36.81	-121.24
2022-12	9.06	3.55	3.27	4.29	85.87	23.76
2022-11	8.97	3.53	3.22	5.21	-7.29	17.89
2022-10	8.98	3.52	3.21	5.57	-13.51	31.2
2022-09	9.00	3.49	3.64	5.92	13.43	-20.47
2022-08	8.98	3.51	3.59	7.45	-16.55	71.04
2022-07	9.00	3.44	3.66	5.8	60.37	34.45
2022-06	8.93	3.40	3.48	5.69	26.63	14.33
2022-05	8.91	3.38	3.71	6.31	14.63	1.44
2022-04	8.89	3.38	4.04	7.17	57.39	-6.59
2022-03	8.83	3.38	4.05	6.56	18.2	54.19
2022-02	8.82	3.31	4.17	7.38	37.83	8.9
2022-01	8.78	3.31	4.39	7.07	10.11	-83.59

Overnight deposits correspond to 60% of total household deposits, and 83% for total corporate. Flows as expected have been more negative, especially in corporate accounts.This could be a combinations of deposits leaving the system, and changing to timed deposit,s since deposits with shorter maturities have had huge growth for both households and corporate in recent months.

Overnight Deposits	Balance (Trillions)		Growth Rates		Flows (Billions)
Date	Households	Corporate	Households	Corporate	Households	Corporate
2023-02	5.44	2.60	0.27	-7.00	(46.16)	(45.80)
2023-01	5.48	2.65	1.81	-4.84	(80.54)	(152.66)
2022-12	5.53	2.79	3.41	-2.32	33.99	5.54
2022-11	5.50	2.78	4.10	-0.64	(27.99)	(19.40)
2022-10	5.53	2.81	4.66	1.17	(24.31)	(29.46)
2022-09	5.55	2.84	5.74	3.46	7.42	(67.05)
2022-08	5.54	2.91	5.94	6.82	(24.79)	41.13
2022-07	5.57	2.86	6.29	5.83	55.36	17.52
2022-06	5.51	2.84	6.23	6.55	28.76	1.47
2022-05	5.48	2.84	6.68	8.09	10.79	15.60
2022-04	5.47	2.82	7.25	8.90	60.58	(6.23)
2022-03	5.41	2.82	7.20	8.66	20.90	43.97
2022-02	5.39	2.77	7.28	9.52	36.63	15.14
2022-01	5.35	2.76	7.62	9.16	5.07	(84.52)

Loan to Deposit Ratio

Loan-to-deposit ratios in percentage are lower compare to historical records. In 2008, loan to deposit ratios were around 140% for the whole EU.

Country	2022-Q3	2022-Q2	2022-Q1	2021-Q4	2021-Q3	2021-Q2	2021-Q1
Austria	111.6	110.8	108.5	107.0	106.6	104.8	105.0
Belgium	74.9	74.4	73.9	72.9	73.5	72.8	73.2
Cyprus	60.0	61.7	61.3	63.7	64.2	65.0	70.4
Germany	98.6	98.3	97.4	97.5	95.8	95.4	95.8
Estonia	85.2	83.9	82.0	80.5	80.3	85.3	84.5
Spain	91.9	92.5	92.6	93.6	94.9	96.0	97.0
Finland	143.2	146.0	147.2	146.4	142.1	145.6	148.5
France	102.4	101.7	100.6	100.4	99.9	100.7	101.0
Greece	60.8	61.3	61.2	60.8	68.8	76.3	83.7
Ireland	97.0	100.6	97.8	89.8	86.1	95.4	92.6
Italy	80.7	80.1	80.1	79.2	80.6	81.8	82.8
Lithuania	63.5	71.4	70.8	66.9	67.2	66.4	66.7
Luxembourg	101.8	100.9	100.2	102.2	103.6	105.4	104.8
Latvia	64.2	62.2	61.9	63.0	65.2	63.0	64.8
Malta	74.0	73.4	73.6	74.1	75.1	76.6	77.8
Netherlands	98.7	99.3	99.5	100.6	101.7	102.7	104.8
Portugal	80.3	80.6	81.4	82.2	84.3	84.4	85.7
Slovenia	69.1	68.4	67.9	66.1	65.6	65.5	66.2
Slovakia	117.0	115.6	112.1	107.0	108.9	105.9	105.1
Euro area	95.4	95.2	94.7	94.4	94.4	95.0	95.7

Loan Book

https://www.ecb.europa.eu/press/pr/date/2023/html/ecb.pr230209~05a4a1b387.en.html

Non Performing Loans

NPLs are a very low levels, however data available is still very lagging.

Date	EU % NPL	Y/Y
3/31/2019	3.1111	-20.199
6/30/2019	3.0404	-16.1753
9/30/2019	2.9133	-15.1557
12/31/2019	2.7815	-13.2383
3/31/2020	2.9658	-4.6698
6/30/2020	2.8682	-5.6626
9/30/2020	2.7634	-5.144
12/31/2020	2.5865	-7.0096
3/31/2021	2.5062	-15.4974
6/30/2021	2.3211	-19.0751
9/30/2021	2.1739	-21.3336
12/31/2021	2.075	-19.7756
3/31/2022	1.9627	-21.6877
6/30/2022	1.876	-19.1764
9/30/2022	1.8284	-15.8945

Credit Growth

Average CET1 Ratio After Adjusting For Potential Unrealised Losses

Unrealized Losses

Research by MorningStar states that European central banks don't have the same fundamentals in their unrealized losses portfolios and funding strategies as the ones that cause regional banks in the US to fail.

In Europe, banks have a smaller proportion of debt securities where the marked to market is not reflected in capital ratios.

• These securities are accounted for in their Amortised Cost (AC) portfolio and according to EBA data, range on average from 18% of total assets (mostly Italian banks) to close to 0% (banks in Finland, Sweden and the Netherlands) at end-June 2022
• In a scenario with a pre-tax loss of 10%, it would translate into a manageable theoretical capital impact for the average of the sample, although the capital depletion would be significant for some banks. Nevertheless, all the banks in the sample will maintain a post-adjustment CET1 ratio above 8%.

EU Banks’ Deposits are Less Concentrated in Corporate Deposits

• EU banks have larger loan books (55% of assets vs. 35% in the case of SVB) and these are already repricing (given a large proportion are variable rate loans).
• Excluding central bank funding, corporate deposits as a share of total funding in Europe averages between 8% to 30% by country in the selected sample. For SVB, corporate deposits represented around 90% of total funding.

Supervisory framework of EU banks is stronger too, since all EU banks are subject to Basel rules on liquidity, in particular the calculation of the Liquidity Coverage Ratio (LCR) as well as the Net Stable Funding ratios (NSFR).

• On average, EU banks have an LCR of 200% and an NSFR of around 130% at end-2022.

S&PGlobal has a similar opinion:

• "S&P Global Ratings maintains its view that, overall, European banks benefit in the rising interest rate environment. This remains our base case. As we said last week, rated European banks do not exhibit a combination of large unrealized losses on securities portfolios and highly confidence-sensitive funding models. Credit Suisse is an outlier among major European banks.  We see the business and risk management deficiencies that led to Credit Suisse's takeover by UBS as quite unique in nature and scope relative to the European banking sector"

Risks from Dollar Liabilities

As of 2018 BIS research, European banks had about $3 trillion in dollar liabilities reported in Europe, the level has decreased since 2008, but the share has increased to more than 50%. This could represent a potential risk since the ECB doesn't have the ability to regulate and print dollars as needed for these obligations.

However, FED has direct swap lines with Europe. This swap line is unlimited, and the ECB only has to post Euro currency as collateral to be able to get dollars. This will limit the liquidity risks in Europe for dollar needs.