Euro area banks' profitability improved in 2022 and their return on equity reached almost 8%, its highest level since the start of the banking union. This improvement in earnings was followed by an increase in distributions to shareholders via dividend payouts and share buybacks. Market valuations for euro area banks also improved, with the valuation gap vis-à-vis their US peers narrowing.
The second key area is resilience. The euro area banking sector is underpinned by strong capital positions. Banks' aggregate Common Equity Tier 1 ratio stood at 15.3% at the end of 2022, well above the minimum requirements. And the decline in nonperforming loan (NPL) stocks continued last year, with banks' aggregate NPL ratio stabilising at 2.3% in the fourth quarter.