vitor constancio : challenges faced by the european banking sector speech by mr vitor constancio, vice - president of the european central bank, at the risk & supervision 2017 conference, organised by the italian banking association ( associazione bancaria italiana ), rome, 14 june 2017. * * * let me start by thanking the italian banking association for inviting me to participate in this important event. euro area banks have faced a number of headwinds since the financial crisis. as a result, euro area banks have raised significant amounts of capital which have led to a substantial strengthening of solvency ratios : average common equity tier 1 capital ( cet1 ) increased from 7 % in 2007 to 14 % at present. the solvency position of european banks is thus robust. the lingering concerns about their condition relate primarily to their low profitability, an issue that has already lasted several years. the subdued profitability is reflected in depressed bank valuations. despite a broad - based improvement in bank valuations in recent quarters, a wide dispersion persists between euro area and u. s. banks ’ valuations. while euro area banks ’ price - to - book ratios have recovered from the lows of mid - 2016, the gap between euro area and u. s. banks ’ valuations remains significant, with an average price - to - book ratio of 0. 77 against 1. 26 for u. s. listed banks. the large cross - sectional variation of price - to - book ratios within the euro area partly reflects cyclical factors, as the pace of economic recovery varies across countries, but possibly also differences in the progress made by institutions in tackling structural challenges. to give you an idea, average price - to - book - value is 0. 94 for spain, 0. 75 for italy, 0. 76 for france and 0. 42 for germany. in the euro area, listed banks aggregate return on equity ( roe ) stood below 3 % in 2016, a slight decline from the previous year. in international comparison, euro area banks ’ financial performance continues to lag behind that of most of their global peers : in 2016, u. s. average roe stood at 8 % with nordic banks above 9 %, led by swedish banks with 12 % roe, a notable performance in a country where key official interest rates are negative and much lower than in the euro area. regarding cross - country differences, listed italian and german banks recorded negative average roe in 2016

. at the same time, inflation for transport, restaurant, and miscellaneous goods and services also went up. the year - to - date average of 4. 2 percent using the 2006 - based basket was slightly above the government ’ s announced inflation target range of 3. 0 percent ± 1. 0 percentage point for 2018 while the year - to - date average of 3. 7 percent using the 2012 - based basket remain within the government ’ s announced inflation target range. the first round price effects of train are evolving more or less as expected. we continue to see the upward inflationary effects as transitory. however, we are carefully assessing next round effects and how inflation expectations could be affected. the various social safety nets 1 / 5 bis central bankers'speeches complementing the train are expected to temper these second round effects. moreover, the resulting improvement in productivity will likely moderate inflation pressures over the medium term. nevertheless, the bsp will remain watchful against signs of higher inflation becoming more broad - based and persistent to ensure that inflation expectations remain consistent with the target. domestic liquidity and credit dynamics remain accommodating to our expanding economy. credit expansion is accompanied by solid demand for loans across key economic sectors. further, the philippine banking system capped 2017 with sustained growth in assets, deposits, and capital. this was accompanied by improved asset quality, firm liquidity position, and strong capitalization. overall, the philippine banking system remains sound and stable. we expect these improvements to continue. the philippines ’ external position also continues to be manageable amid global headwinds. the bop deficit is a reflection of an economy that is growing rapidly in a way that is sustainable. the current account balance also mirrors the saving and investment behaviour of the economy. our savings investment gap has stayed positive since 2003 ( hence the ca surpluses during this period ) but has started to converge in 2015 due mainly to the rise in investments and increase in infrastructure spending. over time, these investment led economic activities will result in the expansion of the economy ’ s potential capacity. the robustness of the country ’ s external position is anchored by our large gir and secondary buffers such as sustained foreign direct investments, remittances and bpo receipts, along with investment grade - rating that guarantees ready market access for any equity and debt financing requirement. meanwhile, the peso continues to flexibly reflect the day - to - day market operations. exchange rates act as automatic stabilizer if they move in a way that damp