German banks are still lagging behind their European competitors.
(Photo: dpa)
Frankfurt The efforts of European banks are beginning to pay off. After years of stagnation, the banking market is on the upswing and the transformation programs for more efficiency are having an effect, according to a new study by the Bearingpoint consultancy, which is available exclusively to the Handelsblatt.
According to the study, the banks have not been working more efficiently since 2013, the return on equity has risen significantly to the pre-crisis level twelve months later after a low point in the corona year 2020 and earnings before taxes have more than doubled. However, not all institutions benefited from the improvements to the same extent.
For the study, Bearingpoint analyzed the financial statements of 122 European banks from 2013 to 2021 that are supervised by the ECB or national supervisory authorities. The data set thus covers around 70 percent of the aggregated total assets of all financial institutions in the EU.
On average, the institutions’ return on equity rose to 8.1 percent in 2021, well above the pre-crisis figure of 6.1 percent. As in the past five years, the Scandinavian financial institutions are at the top with a profitability of 10.7 percent. According to Bearingpoint, the main reasons for this are cost discipline and the high degree of digitization.
Top jobs of the day
Find the best jobs now and
be notified by email.
Germany brings up the rear in Europe. With an average return on equity of 4.5 percent, the financial institutions do not even perform half as well as their Scandinavian competitors. But compared to 2020 with a value of only 0.7 percent, the domestic banks are also improving and are taking the first step to get closer to the other regions.
> >Read here: Bundesbank Executive Board warns German banks – “Do not underestimate the extent of the problems”
A similar picture as with the return on equity can also be seen in the case of efficiency, measured by the ratio of costs to income (cost-income ratio, CIR). With an average CIR of 62 percent, European banks achieved their best value since 2013 in 2021. Here too, the Scandinavian banks performed best with a CIR of 49.1 percent. With 70.4 percent, Germany is again in last place. The consultants attribute this, among other things, to the high costs for the restructuring programs of some institutes.
There was no wave of bankruptcies
The main drivers for the improved efficiency were not only the extensive transformation and digitization programs, but also a stable earnings situation during the pandemic. Since the feared wave of bankruptcies did not materialize, many institutions were able to liquidate large parts of the risk provisions made for this purpose in the second half of the year. After reaching a record high of 121.4 percent in 2020 compared to 2019, loan loss provisions fell below pre-crisis levels in 2021, standing at just 64.9 percent compared to 2019.
Driven by this development, the financial institutions were able to more than double their profitability, measured by aggregated pre-tax profit compared to the previous year, and exceeded the highest value since the beginning of the analysis from 2018 by around 20 percent. But in this category, too, Germany is one of the laggards. Domestic institutes account for 12.3 percent of aggregated total assets in Europe, but German banks only account for 6.4 percent of aggregated profit before taxes.
More: Banking regulator warns – 30 percent of all non-performing loans relate to commercial real estate