Non-Performing Exposures (NPE) risk remains a key driver of asset performance for EU banks as shown by the recent market reaction to the stance of the SSM on the legacy stock of NPE.

In this short memo we perform a new analysis of the provisioning shortfalls of EU banks, based on the latest EBA transparency data.

We believe banks have made enormous progress on that front:

  • Strong reduction of EU bank’s NPE (3.58% in average, -100bps YoY).
  • Healthier banks with increasing coverage and CET1 ratios.
  • All the drama is gone: according to our own estimates, there is no bank with a very high shortfall anymore and the problems now seem well identified (please refer to the analysis below to see the few banks at risk).

In conclusion, we believe the resolution risk has clearly receded in Europe.