European bank performance 1 years after the crisis London,
European banks have become more profitable, but revenue gap to US peers widened further in last few years Net income USD / EUR bn, up to Q4 17 6 Total revenues Q1 26 = 1, up to Q4 17 14 4 2 Tax reform 13 12 11-2 1-4 9-6 8-8 6 7 8 9 1 11 12 13 14 15 16 17 US banks Large European banks Sources: FDIC, company reports, 7 6 7 8 9 1 11 12 13 14 15 16 17 US banks Large European banks Sources: FDIC, company reports, 2
as low rates have hurt banks interest income with only limited impact on lending Net interest income EUR bn, top 2 European banks 14 Lending to the private sector % yoy, up to Jan 18 12 135 13 125 12 115 11 9 6 3-3 15 1 H1 9 H1 1 H1 11 H1 12 H1 13 H1 14 H1 15 H1 16 H1 17 Sources: Company reports, -6-9 8 9 1 11 12 13 14 15 16 17 18 US Euro area Sources: ECB, FDIC, 3
yet low rates have massively helped asset quality Loan loss provisions USD / EUR bn, up to Q4 17 8 7 6 NPLs in selected countries Non-performing loans as % of total loans 28 24 2 56 48 4 5 4 3 2 1 6 7 8 9 1 11 12 13 14 15 16 17 US banks Large European banks Sources: FDIC, company reports, 16 12 8 4 Dec 9 Dec 1 Dec 11 Dec 12 France* UK Italy* Portugal Greece (right) Dec 13 Dec 14 Dec 15 Dec 16 Germany* US Spain Ireland Cyprus (right) * No data available for Q1 and Q3, data for Germany only available for Q4. Sources: IMF, Banco de España, Banco de Portugal, Banca d'italia, Dec 17 32 24 16 8 4
Cost pressure remains high, but capital issues have been resolved Cost-income ratio of Europe's 2 major banks %, unweighted average 7 65 6 55 5 45 4 21 217 Sources: Company reports, Core Tier 1/Common Equity Tier 1 ratio* of Europe's 2 largest banks %, unweighted average 16 14 12 1 8 6 4 Dec 8 Dec 9 Dec 1 Fully loaded Dec 11 Dec 12 Dec 13 Dec 14 Dec 15 Current/transitional rules Dec 16 * Basel II; Basel 2.5 applied from Q4 11 on, Basel III from Q1 14 on Dec 17 Sources: Company reports, 5
European banks shrink to (pro)fit 217: second-best annual result since financial crisis - Revenues still depressed - Banks cut costs and benefit from improving asset quality driven by low interest rates and economic recovery what happens in the next recession? - Capital levels have more than doubled since 28 massive de-risking and shrinking US competitors are far ahead - Revenues on a stable upward trend - Loan growth and loan losses have suffered somewhat from rising interest rates, but overall remain resilient - Profitability moving from one record to the next European outlook: - Rising rates likely to strengthen interest margins, but also slow down volume growth (again) 6
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