Share the article
twitter-iconcopy-link-iconprint-icon
share-icon
DatabankJune 28 2021

Pandemic exacerbates profit squeeze at European banks

Return on equity and return on capital continue to fall at leading European banks, according to The Banker’s 2021 Top 1000 World Banks ranking.
Share the article
twitter-iconcopy-link-iconprint-icon
share-icon

Profitability had been a challenge for Europe’s banks before the pandemic, with tepid economic growth and a low interest rate environment squeezing returns. But key measures of profitability for the region have slumped even further this year, according to The Banker’s 2021 Top 1000 World Banks ranking, based on data from The Banker Database.

Return on equity, already at a none-too-impressive 5.9% in 2020, now stands at just 2.8%; return on capital has fallen from 6.9% to just 3.1%; and return on assets is now at a paltry 0.16%. About 220 European banks are included in The Banker’s Top 1000 ranking.

However, one notable standout success story within Europe is Deutsche Bank. In February this year, it reported its first net profit since 2014 and its pre-tax profits also increased by $4.2bn year-on-year from a loss of almost $3bn to pre-tax profits of $1.3bn.

Deutsche had undergone a significant restructuring involving the loss of tens of thousands of jobs and with its investment bank, in particular, the target of efforts to create a “more stable and competitive” operation. In 2020, the investment banking division accounted for more than 38% of the core bank’s revenue and was the only one of its four main divisions to see revenue increase.

One notable standout success story within Europe is Deutsche Bank

HSBC remains the only European headquartered bank within the top 10 banks by Tier 1 capital in the 2021 Top 1000 World Banks ranking.  It has moved up one position from ninth to eighth position, with its Tier 1 capital increasing by 8.0% year-on-year. Its pre-tax profits fell 34% year-on-year largely as a result of having to set aside considerable sums to cover loan losses.

Among the noise generated by the Covid-19 pandemic, it is hard to pinpoint within the figures what the impact has been of the bank’s restructuring programme, which it commenced in February last year. In the long term, the bank is pegging its hopes on Asia-Pacific and the Middle East to deliver growth in the coming years; the bank already generates most of its income from business done in Asia-Pacific.

Was this article helpful?

Thank you for your feedback!