The profitability of German banks plummets. The EBA, the European Banking Authority, has published the periodic report on the assessment of the stability of European banks. While the capital position remained strong and asset quality improved, profitability contracted in the 2019 quarter, with a negative outlook for both banks and analysts.
The analysis takes into consideration a sample of 147 banks, including 11 Italian, able to cover 80% of the European capitalization of the sector. The results show that European banks are still far behind in terms of earnings and profitability.
But what is alarming is the situation of German banks, last in Europe in terms of overall solidity. The indices examined are different, but none is positive. Let's examine the data published by the Authority.
How long it concerns Roe, the return on average capital of European banks, there is a reduction to 6,6%, of no less than forty points compared to the previous quarter. Italian banks, although down by 0,1%, are above the average, at 8,5%, but below those of Hungary and Eastern Europe. Behind we find the Spanish institutions with 7,3%, the French ones with 6,5% and the Greek ones with 3,2%. In last place we find German banks with 0,3%, albeit low but higher than the -0,1% in the second quarter.
On this point, the EBA highlighted that the "prospects of profitability for the sector remain extremely scarce". This is because the passing on negative rates to customers it is blocked by legal or commercial constraints, but also because some banking products are turning into commodities, and as such, are subject to price competitiveness.
The report's findings show that banks and analysts are quite pessimistic about the trend in profitability, only 20% of banks, against 10% of analysts expect an overall increase in the near future, compared with 25% and 20% recorded in the previous report.
Although the capital of European banks remains solid, with an improvement in the quality of assets (capital is equal to 14,5%), German banks, at 13,8%, are below those of Italy (14%) and of the French ones (14,5%). Probably these low data of the German institutes are due to the strong systemic instability of the Deutsche Bank and the failed merger attempt with Commerzbank last summer.
Instead, the relationship between costs and revenues is of no less concern. Even in this ranking, Germany wins the first prize, negative, with 84%. Followed by the French with 72% and the Italians with 64%, close to the average of 63%.
In this scenario, Italy would appear to be rather stable, even if for our country, the main problem continues to be that of non-performing loans, despite the reduction in recent years, we are still above the European average (7,2% against 2,9% European), but with higher coverage rates (53% against 45%). It does not seem surprising at this point why Germany is so oriented towards the implementation of the reform of the Mes, or why, in all these years, it has insisted on classifying government bonds as risky, but not the illiquid ones with which German banks are loaded.
