LONDON (Reuters) – Banks in the European Union have strong enough capital buffers to weather the coronavirus crisis but profitability remains weak and could suffer further as the pandemic progresses, the bloc’s banking watchdog said on Tuesday.
Core capital buffers rose to 14.8% of risk-weighted assets in the fourth quarter of 2019, up from 14.4% in the third quarter, the European Banking Authority (EBA) said in a statement.
“Sound capital positions should enable EU banks to weather expected upcoming impacts stemming from the coronavirus crisis and to provide lending to the economy at the time of need,” the EBA said.
Allowing banks to use some of their capital buffers during the pandemic will help, it said.
“In addition, the suspension of dividends and variable remuneration aim at maintaining banks’ sound capital base.”
But the return on equity, a key measure of profitability, fell by 80 basis points in the fourth quarter to 5.8%, well below the average cost of equity, EBA said.
“The COVID-19 pandemic has led to supply- and demand shocks that are expected to weigh on economic growth and further add to substantial bank profitability challenges.”
