The reporting season for the first quarter of the year has kicked off for Europe’s banks, with most lenders having posted strong results so far. However, the outlook for the rest of 2022 is more bleak, with the full impact of the war in Ukraine set to create macroeconomic headwinds.
From the larger European banks, Deutsche Bank and UBS were the top performers for the first quarter, with both banks posting an increase in pre-tax profits compared with the first quarter of 2021. Deutsche’s pre-tax profits rose from €1.6bn to €1.7bn, while UBS posted pre-tax profits of $2.7bn compared with $2.3bn over the same period in 2021.
HSBC and Barclays failed to beat their pre-tax profits from the first quarter of 2021. Meanwhile, Credit Suisse reported a pre-tax loss of CHF428m ($438m), stemming from its exposures to Russia and further legal woes at the Swiss bank.
“We consider European banks’ first quarter results have been generally strong, benefitting from a rebound of the economy after the pandemic,” says Maria Rivas, senior vice-president in the global financial institutions team at DBRS Morningstar. “While we have started to see some negative impact from the Russia-Ukraine conflict at some banks, European banks’ results have not been materially impacted and non-performing loans have remained broadly stable from the previous quarter.”
However, Ms Rivas warns that the outlook for European banks is challenging. “The medium-term effect of the Russia-Ukraine conflict and persistent inflation pressures will be more visible in European banks’ result in coming quarters, as we see the impact on European economies,” she says. “We expect a more challenging macroeconomic environment will require banks to book higher provisions in coming quarters, although we also expect banks to utilise some of the provisions booked in relation to Covid-19 that were not released in 2021.”
