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Global banking outlook 2012-2013 - Europe - EY - Global

Global banking outlook 2012-2013

Europe

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Political, regulatory and economic pressures will see many European banks scale back their operations outside the region but buyers for these assets may be scarce.

UK

The UK economy is continuing to recovery after being rocked by the global financial crisis.

Business and consumer confidence remains low and the focus is on developing and saving rather than borrowing and investing.

At the same time, the UK faces looming legislation. The sheer scale of implementation could be overwhelming for some. The more challenged organizations will cut back or exit completely from non-core business lines and jurisdictions.

Perhaps the one optimistic note for banking in the UK will come from a global recovery that is likely to precede the domestic turnaround. Banks serving the multinational corporates headquartered in the UK should see that area of corporate and investment banking activity pick up ahead of local businesses.


UK 2009 2010 2011* 2012 forecast 2013 forecast
        Feb 2011 Feb 2012 Feb 2011 Feb 2012
Real GDP growth -4.4 2.1 0.9 2.6 0.3 3.0 1.8
Policy interest rate 0.6 0.5 0.5 1.3 0.5 2.9 0.5
Unemployment rate 7.7 7.9 8.1 8.0 8.8 7.5 8.7
Inflation 2.2 3.3 4.5 1.8 2.2 1.8 1.7

* Latest estimates used where final figures not yet available. Forecasts for 2012 and 2013 made in February 2011 and February 2012. Source: Oxford Economics


Eurozone

The broader outlook for the Eurozone, and the banks within it, will depend almost exclusively on when and how the crisis ends. A second bailout for Greece has been agreed on and yields Spanish and Italian sovereign bonds seem to be failing.

However, the austerity measures being implemented in Greece and across the Eurozone, though much needed, are extremely challenging. If successful, they will deliver long-term benefits, but that success is far from certain. Questions remain if governments have struck the right balance between reducing their deficits and stimulating growth.

In the face of all this, consumers and companies will continue to deleverage and Eurozone output is expected to shrink further in the early part of 2012. Conditions are not favorable for investment and expansion, with companies either sitting on cash or unable to access funding.

Regulation across the EU
Much of the European supervisory agenda in 2012 will focus on Basel III implementation. The Markets in Financial Instruments Directive (MiFID) published in December 2011 sweeps a wide variety of “equity-like” products, such as exchange-traded funds and others, fixed income instruments and high frequency trading strategies into the net.

From funding challenge to capital challenge
The next challenge for many banks will be meeting the new 9% core tier one capital requirement established by the European Banking Authority (EBA). The EBA’s December 2011 stress test results showed that EU banks face a significant aggregate shortfall with 31 banks required to increase capital levels.


Eurozone 2009 2010 2011* 2012 forecast 2013 forecast
        Feb 2011 Feb 2012 Feb 2011 Feb 2012
Real GDP growth -4.2 1.8 1.6 1.7 -0.4 2.0 0.8
Policy interest rate 1.1 1.0 1.2 2.3 0.6 3.1 0.5
Unemployment rate 9.6 10.1 10.1 9.6 11.0 9.3 11.0
Inflation 0.3 1.6 2.7 1.8 2.0 1.8 1.8

* Latest estimates used where final figures not yet available. Forecasts for 2012 and 2013 made in February 2011 and February 2012. Source: Oxford Economics


Switzerland

Despite a banking system and economy long viewed as bastions of stability and safety, the outlook is mixed. Growth has suffered as a result of the Eurozone crisis and exporters have also been hit by the strength of the Swiss franc, dampening the outlook for the domestic corporate banking market.

Yet, the increasing wealth of individuals in many of the rapid-growth economies will be another source of optimism for the sector as banks will continue to expand their coverage in these markets, particularly Latin America and the Middle East.

The emergence of Hong Kong and Singapore as leading wealth management centers in Asia may be competition for Switzerland, but Swiss banks will continue to build out their capability in the region and offer clients an alternative booking center to Switzerland.


Switzerland 2009 2010 2011* 2012 forecast 2013 forecast
        Feb 2011 Feb 2012 Feb 2011 Feb 2012
Real GDP growth -1.9 2.7 1.8 1.9 0.3 1.8 1.5
Policy interest rate 0.3 0.2 0.1 2.2 0.1 2.3 1.2
Unemployment rate 4.2 3.5 3.1 2.9 3.4 2.9 3.1
Inflation -0.5 0.7 0.2 1.0 -0.3 1.3 0.8

* Latest estimates used where final figures not yet available. Forecasts for 2012 and 2013 made in February 2011 and February 2012. Source: Oxford Economics




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Global banking outlook 2012-2013

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  • Steven Lewis
    Global Banking & Capital Markets Lead Analyst
    Ernst & Young LLP

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