Table of Contents:
Introduction to banking soundness in 2024
In 2024, the euro area banking sector demonstrated significant resilience, as evidenced by the results published by the European Central Bank (ECB). Banks have maintained strong capital and cash positions, exceeding regulatory requirements. This article will explore the details of the prudential review and assessment (SREP) and the implications for the future of the industry
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Banks’ capital performance and liquidity
According to the ECB, the Tier 1 primary capital ratio (CET1) stood at 15.8% in mid-2024, showing a slight improvement compared to the previous year.
This figure is significant, since it indicates that European banks have not only met the minimum requirements, but have also built a capital buffer to face any future crises. In addition, the leverage ratio increased to 5.8%, suggesting prudent asset management and a greater capacity
to absorb losses.
Rising interest rates and profitability
The rise in interest rates had a positive impact on banks’ profitability, allowing them to improve profit margins. This scenario is particularly favorable for institutions that have been able to adapt quickly to new market conditions. However, it is crucial that banks continue to closely monitor the risks associated with a rising interest rate environment, to avoid potential financial imbalances
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Supervisory Requirements and Pillar 2 Requirement (P2R)
A crucial aspect of evaluating bank soundness is the Pillar 2 Requirement (P2R), which represents a specific capital requirement for each bank. This requirement supplements the minimum required capital and takes into account additional risks not covered by the first pillar. Banks that don’t comply with P2R can face severe supervisory measures, including penalties. The guidelines of the second pillar, although not legally binding, reflect the expectations of the ECB and must be
followed carefully.
The strongest banks in the euro area
Among the most secure banks, Credem stands out, which has maintained the lowest P2R in Europe, set at 1% for the fifth consecutive year. Intesa Sanpaolo and Banca Mediolanum also stand out with a P2R of 1.5%. Other institutions such as Mediobanca, Unicredit and Banco BPM follow with higher requirements, but still manageable. This diversification in capital requirements provides investors and customers with an overview of the soundness and stability of the various banks
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Final Thoughts for Choosing the Right Bank
When it comes to choosing the right bank, in addition to the capital requirements established by the ECB, it is important to also consider other factors such as the quality of the service, product offerings and the institution’s reputation. Capital strength is fundamental, but customer trust and satisfaction are just as crucial for an informed choice. In a constantly changing economic environment, a bank’s ability to adapt and respond to customer needs will be decisive for its future success.
