Over the last five years, profitability of banking sector has surged reaching $ billion in 2007, return on equity growing to 20.0% by Sept 07 and net NPLs ratio reducing to 2.3%. Capital market has benefited from the growth in stock market capitalization from $ billion to $ billion by the end-2007 and rise in P/E ratios have attracted foreign portfolio investment.
Term premia in the euro area have been suppressed – including before the crisis – by supply and demand imbalances for safe assets at the global level, especially as increasing demand from foreign investors has interacted with a shrinking supply of highly-rated securities denominated in euro, owing to crisis-time downgrades of certain sovereign issuers and progress in fiscal consolidation in some other AAA issuers.