Published On: Tue, Dec 2nd, 2014

Global banks return to profit, but Europe lags: study

The Canary Wharf financial district is seen in east London
The global banking industry has moved beyond recovery and regained overall profit for the first time since the financial crisis, although European lenders are still lagging far behind rivals, an industry study showed.

“Banks in North America are again growing and showing sizable economic profit, while those in Europe show little sign of recovery, ” Boston Consulting Group (BCG) said in its Global Risk 2014/15 report, released on Tuesday.

Economic profit (EP) is a measure of profitability that includes refinancing, operating and risk costs against income.

Banks generated an EP of 18 billion euros ($22.5 billion) in 2013, or 3 basis points of total assets, compared with negative EP of between 6 and 23 basis points in the previous four years, BCG said. Its latest study was based on more than 300 banks, representing over 80 percent of global bank assets.

Banks in North America produced an economic profit of 25 billion euros, and profitability also improved in the Middle East and Africa. The study said banks in Asia-Pacific produced the biggest EP of 112 billion euros, near flat from 2012.

Banks in Europe delivered negative EP of 136 billion euros last year, from negative 161 billion in 2012, to take their losses since 2009 to 600 billion euros, the study said.

Eurozone banks have been slow to rebuild their capital strength and restructure against a difficult economic backdrop. Improving their profitability is their biggest challenge and they may need to sell off more loss-making units, the euro bloc’s top banking supervisor said on Friday.

BGC’s report said banks are entering a new era of regulation in which every region, product and legal entity will be closely regulated, reflecting regulators’ intent to trigger cultural change.

“Banks should adopt a ‘good citizen’ approach that embraces and proactively addresses the broad intent of today’s hyper-regulation.”



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