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broadly offset the negative impact of low rates on net interest margins. against the backdrop of continued loan growth, net interest income increased by about 4 % in the first three quarters of 2019, compared with the same period in the previous year. but margins slightly tightened in 2019 as a whole and are expected to remain under pressure. in addition, increasing provisioning needs and persistently high costs will continue to weigh on banks ’ return on equity. structural factors are at the heart of weak bank profitability, however. euro area banks face challenges linked to the sector ’ s overcapacity, with two important implications for profitability. first, banks are not fully benefiting from economies of scale and are relying on overlapping physical distribution networks, leading to persistent cost inefficiencies. indeed, euro area banks ’ cost - to - income ratio – at 66 % in the 12 months to september 2019 – is high when compared 1 / 4 bis central bankers'speeches with their global peers. second, many banks have low market shares and face high competitive pressures which, in turn, have an impact on their pricing behaviour. on the positive side, banks have greatly improved the quality of their balance sheets and their resilience over the past few years. there has been a steady improvement in their asset quality : the ratio of non - performing loans more than halved over four years, reaching 3. 4 % in the third quarter of 2019. banks now hold significantly more and higher - quality regulatory capital than before the crisis, largely reflecting the impact of the new regulatory framework. significant banks ’ aggregate common equity tier 1 ratio, a key measure of capital strength, stood at 14. 4 % in the third quarter of 2019, up from 12. 7 % in mid - 2015. regulatory liquidity ratios are also at solid levels, with an aggregate liquidity coverage ratio of 145 %. furthermore, banks also made progress in building loss - absorbency capacity by issuing more debt instruments that can be bailed in. some market analysts think this has been facilitated by reduced risk aversion among fixed income investors who, unlike equity investors, are less concerned about the overall bank profitability outlook. but although banks have improved their capital positions in recent years, they hold only a small fraction of their capital requirements in the form of the countercyclical capital buffer, which authorities can release in the event of systemic stress to help avoid costly economic deleveraging. this suggests that the current composition of capital requirements may need to