Lenders in the EU's Top 250 Banks ranking have seen an aggregate drop in profits and Tier 1 capital, though Austria's banking sector managed to reverse this trend. Stefanie Linhardt reports.

Two-thousand and sixteen was a rocky year for EU banks. Across the leading 250 EU banks by Tier 1 capital, all major indicators dropped compared with the previous year. Profits fell significantly, by 15.25%, largely driven by aggregate losses in Italy, Portugal and Greece.

Out of the 36 Italian banks in the ranking, 20 made a profit, yet the $10.9bn loss at UniCredit and losses of more than $1bn each at five other banks (including Veneto Banca and Banca Popolare di Vicenza, which have since been deemed failing by the European Central Bank) have made Italy’s lenders the highest loss makers on aggregate in the Top 250 ranking with $16.1bn. This compares to $7.7bn of aggregate profits in the 2016 ranking.

The performance of Portugal’s banks worsened by more than $3bn in 2016 compared with the previous ranking to $3.5bn of losses, while Greece’s financial institutions have turned a corner: losses there have fallen to $3bn compared with $14bn in 2015.

However, aggregate profits have decreased in most EU countries, with even top performers France ($39.6bn) and the UK ($17.7bn) seeing their incomes fall – the UK so much so that Spain’s banks ($24.1bn) have taken over its spot as the second most profitable banking country in the region.

Tier 1 capital down

Tier 1 capital across the region also dropped by 4.13%, with the largest aggregate falls in Portugal, Italy and the UK.

Austria is a significant outlier, showing significant improvement across its lenders, both in Tier 1 capital (up 7.4%) and profits (up 19.9%). Of the country's 20 banks in the ranking, 15 increased their capitalisation – 133rd ranked Addiko Bank by 29.2%, 175th Volksbank Wien by 21% and 79th Bawag PSK by 20.4% – and only two banks made a loss.

While the UK’s largest lender, HSBC, is still the largest bank by Tier 1 across the entire EU both by capitalisation and assets, the group saw its Tier 1 capital fall by 10%, assets by 1.4% and profits by 62.3%, making the EU’s top two, three and four ranked banks all more profitable than HSBC.

Second ranked Crédit Agricole improved its capitalisation in 2016 but reported a reduction in assets and profits, while compatriot BNP Paribas improved all its metrics, posting the region’s largest profits at $11.8bn.

Banco Santander is the fourth largest lender by capitalisation and the only Spanish bank in the top 10. While most Spanish banks reduced their Tier 1 capital, only six of the 17 in the ranking saw their profits fall and only one reported a loss.

Apart from HSBC, UK banks broadly saw a negative impact on their capital strength, with only eight out of 35 institutions in the ranking improving their Tier 1 capital. Notably, UK government-owned RBS saw another 27.9% drop in Tier 1 capital and reported a loss of $5bn, while the Co-operative Bank’s capitalisation fell by 47.1% with losses of $589m.

The UK’s Metro Bank, on the other hand, had one of the highest Tier 1 capital growth ratios across the ranking at 79.7%, followed by Paragon Bank’s 67.2%. These ratios were only eclipsed by Italy’s regional lender Cassa di Risparmio di Cesena and private equity-owned ICBPI.

Top 250 EU banks

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