Le European banks continue to grow in profitability, but it is the Italian banking system to earn the spotlight: with a return on equity (Roe) of the 15,7%, up from 15,5% in the previous quarter, outperform the European average (11,1%). Not only do they beat the solid Spanish institutions, but they also significantly outdistance French and German banks, which record values below 7%.
The rise of interest rates has had a decisive impact in strengthening the profitability of banks. Claudia Book, Chairman of the Supervisory Board of the European Central Bank (ECB), stressed: “A key determinant is represented by higher interest rates: during the period of low interest rates, the average return on banks' capital was 5,5%; following the normalization of rates, it increased to 9,2%”.
Banks: Europe rises, but Italy soars
According to the data of theEuropean Banking Authority (Eba), the ROE of the continent's 164 main banks, representing 80% of the sector, increased to 11,1% in the third quarter, compared to 10,9% in the second. This growth brought overall profitability back to the levels of a year ago, despite a slight reduction of interest margin, a sign that banks are benefiting from a reduction in operating costs.
Alongside Italy, other Mediterranean countries also stand out: the Portugal stands out with a Rue of 18%, followed by the Spain (14,7%) and from Greece (14,6%). The results of France e Germany, with a ROE of 6,9% and 6,3% respectively.
Who are the protagonists?
Leading the Italian success are 12 banking institutions, including Understanding St. Paul, Unicredit e Mediobanca, supported by equally solid entities such as Finecobank, Monte dei Paschi di Siena Bank, Banca Popular of Sondrio, Bpm bank, B for Bank, Central Bank Cash, Credem, Banca Mediolanum e Iccrea.
Many of these banks, even smaller ones, have demonstrated an extraordinary ability to maintain high profitability thanks to careful cost management and prudent risk policies, factors which have allowed them to obtain results above the European average.
Interest margin and asset quality
Despite the light reduction of the European interest margin, which fell to 1,66% of productive assets (compared to 1,68% in the second quarter), banks continue to benefit from interest income that is 40% higher than at the end of 2021.
On the front of the credit quality, the relationship between non-performing loans (Npl) and total loans increased by 2 basis points to 1,88%. The share of Stage 2 loans, those with a significant increase in risk but not yet deteriorated, improved slightly, dropping from 9,3% to 9,2%.
The EBA survey found that 47% of European banks expect asset quality to deteriorate over the next 6-12 months, with the largest decline occurring in consumer credit, SMEs and commercial real estate. However, this is an improvement on previous surveys, signalling a climate of greater confidence.
Capital and liquidity: solid foundations
From a patrimonial point of view, the Common Equity Tier 1 (Cet1) fully loaded of European banks fell by 10 basis points to 16%, still well above regulatory requirements.
The indices of liquid assets they remain robust: the Liquidity Coverage Ratio (Lcr) is at 161% and the Net Stable Funding Ratio (Nsfr) at 127%, both well above the minimum requirements. However, a reduction in liquidity reserves in the Lcr is observed, in favor of an increase in exposure to government bonds, reflecting a portfolio optimization strategy.
Loans and monetary policy
On the credit front, the Loans the economy has suffered a slight contraction in the quarter: financing to companies decreased by 1,6%, while those at families have remained stable. This occurs in a context of more accommodative monetary policy, with the ECB cutting interest rates four times since June, from 4% to 3%. Markets are expecting further cuts to 1,75% by 2025, which could support a recovery in lending in the coming quarters.
