European Banking Barometer – Spring / Summer 2013

Key findings

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Muted optimism as European banks continue their rehabilitation

Banks across Europe are viewing the next six months with muted optimism according to EY’s European Banking Barometer - Spring / Summer 2013, released on Monday 24 June 2013. Fewer banks expect to have to resort to central bank funding and, although cutting costs remains high on the agenda, the pressure on job cuts is declining.

How do you expect the
general economic outlook in your
country to change over the next
six months?*

How do you expect the general economic outlook in your country to change over the next six months?

Robert Cubbage, Europe, Middle East, India and Africa Leader for Banking and Capital Markets, comments: “There has been a subtle shift in confidence in the last six months and the overriding sentiment from the European banking industry is now one of cautious optimism. Cost-cutting, the regulatory agenda and loan loss provisions all continue to cause the banks headaches but, for the first time in years, banks are predicting that they will see increased demand across most of their business lines – even investment banking.”

Banks will continue to wean themselves off of central bank funding

Forty-five percent of all respondents are confident that they will be able to improve their funding mix this year. Less than 25% expect to access central bank funding programs and 39% of banks expect to be better able to repay these funding schemes. However, responses across Europe are not all so optimistic, 50% of banks in Italy, 42% in France, and 40% in Spain all expect to have to increase their access to central bank funding.

Which, if any, of the following
is your bank likely to consider
over the next six months in
relation to the countries in
which it operates?*

Which, if any, of the following is your bank likely to consider over the next six months in relation to the countries in which it operates?

Banks will have to continue to deleverage and sell assets to bolster their balance sheets. Banks in Spain and Italy are the most likely to sell assets, with 50% of respondents saying they expect to sell assets in the next six months, compared to 35% of respondents across other markets.

Half of all the banks surveyed expect to continue to shrink their balance sheets, with banks in the UK and France putting slightly more emphasis on this (60% of respondents).

Steven Lewis, Lead Global Banking Analyst at EY, comments: “While banks are still part-way through their rehabilitation following the financial crisis, the benefits of the restructuring programs are starting to come through. We expect that by the end of this year more banks will have weaned themselves off of central bank funding and that some banks, in particular in the northern Eurozone economies and in countries outside of the Eurozone, will be in a position to start to focus on growth again.”

Some banks now expect to start focusing on growth opportunities, with 25% considering asset purchases in the next six months.

Over the next six months, how
do you expect the headcount
of your bank to change?*

Over the next six months, how do you expect the headcount of your bank to change?

Ongoing restructuring programs will lead to further job cuts

Forty-one percent of banks still expect to reduce headcount. The greatest job losses are expected in Austria, Italy, the Nordics and Poland, where over 60% of banks expect to make cuts. Significant cuts are also expected in the UK and the Netherlands, but the outlook for these two markets is significantly improved compared to the stats from six months ago.

Steven says: “It’s not surprising that banks expect job cuts to continue to play a significant role in their restructuring and cost reduction agendas but we think the pace of cuts is now slowing in most markets. Headcount reduction programs do take time to implement and most of the job cuts anticipated by the banks will be part of redundancy programs they have already announced rather than a whole new round of job cuts. Perhaps most importantly, we are seeing a shift from a focus on short-term cost cutting to more strategic cost-cutting options.”

Over the next six months, what
do you expect your bank's total
provisions against loan losses
to do?*

Over the next six months, what do you expect your bank's total provisions against loan losses to do?

A third of banks still expect to have to increase loan-loss provisions

The growth in loan loss provisions is abating, 32% of banks expect to have to increase provisions over the next six months, compared to 44% of banks six months ago. However, while in the UK, Switzerland and Austria write-offs look to have stabilized, banks remain worried about loan losses and more than half of the banks in Poland and Spain expect to increase loan loss provisions in the next six months.

Lending to SMEs to increase but real estate and construction to struggle

Since the survey six months ago, the outlook for lending has weakened even further across most sectors – it is only in lending to SMEs and manufacturing that banks expect to be able to lend more.

How do you expect the
corporate lending policies of
banks in your country to change
in each of the following sectors
over the next six months?*

How do you expect the corporate lending policies of banks in your country to change in each of the following sectors over the next six months?

For construction and real estate in particular the picture is bleak – six months ago banks said they were going to introduce more restrictive lending policies for these sectors and it looks like the policies are going to be tightened again.

Steven says: “Banks are already struggling with their existing loan book, especially loans to construction and real estate and so it is not surprising that they have less of an appetite to take on more risk in these areas. The responses on SME lending are encouraging though – in all markets other than Poland, the Nordics and Spain banks are relaxing their lending policies for SMEs, in a sign that some of the policy to boost lending to SMEs across Europe is having an effect.”

An improved outlook for most business lines, even Investment Banking

How do you rate the outlook for
your bank over the next six
months in each of the following
business lines?*

How do you rate the outlook for your bank over the next six months in each of the following business lines?

Banks anticipate an improved outlook for most business lines – they are most positive about retail and private banking but, after a challenging 2012, the greatest improvement is for investment banking activity. Over 25% of respondents are positive about the outlook for M&A and banks also expect an improved performance from their debt issuance and trading businesses.

Steven says: “While banks still need to go through some pain in terms of loan losses and job cuts, the fact that they expect the main lines of the business to perform better, including investment banking activity, is one of the most promising signs that the industry may well be on the road to recovery. However, banks’ optimism is dependent on continued confidence in the economy and remains vulnerable to economic set-backs.”


How do you expect the general economic outlook in your country to change over the next six months?*

How do you expect the general economic outlook in your country to change over the next six months?

*Number reflect the percentage of respondents who answered.

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Which, if any, of the following is your bank likely to consider over the next six months in relation to the countries in which it operates?*

Which, if any, of the following is your bank likely to consider over the next six months in relation to the countries in which it operates?

*Numbers reflect the percentage of respondents who answered ( respondents could select more than one option ). Please note, chart may not add up to 100% due to respondents selecting 'Don't know' or 'Not applicable'.

×

Over the next six months, how do you expect the headcount of your bank to change?*

Over the next six months, how do you expect the headcount of your bank to change?

*Numbers reflect the percentage of respondents who answered.

×

Over the next six months, what do you expect your bank's total provisions against loan losses to do?*

Over the next six months, what do you expect your bank's total provisions against loan losses to do?

*Numbers reflect the percentage of respondents who answered.
Some totals may not add up 100% due to rounding

×

How do you expect the corporate lending policies of banks in your country to change in each of the following sectors over the next six months?*

How do you expect the corporate lending policies of banks in your country to change in each of the following sectors over the next six months?

*Numbers reflect the percentage of respondents who answered.
where totals do not add up to 100%, remaining respondents answered 'Remain unchanged' or 'Don't know'. Where no data is shown all respondents answered 'Remain unchanged' or 'Don't know'.

×
How do you rate the outlook for your bank over the next six months in each of the following business lines?*

How do you rate the outlook for your bank over the next six months in each of the following business lines?

*Numbers reflect the percentage of respondents who answered.
Please note, chart may not add up to 100% due to rounding. Private banking, Wealth management and Asset management were combined in the Autumn/Winter 2012 Barometer.

×