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The Europe Banking Sectors : A Company and Industry Analysis (August 2005)
Mergent, Aug 2005
Current Environment - Key Points
- Despite facing weaker economic growth and a tougher operating environment, the banking industry in Europe managed to stay focused and continued to make headway
- The European Central Bank (ECB) faced an interest rate cut dilemma; however, industry analysts expect rates will stay on hold for the next 18 months
- The performance of most banking stocks continued to be positive in the first half of 2005, with leading banks reporting healthy growth in net income
- For some banks, strong volume growth in lending, together with continued growth in non-interest income, offset reduced interest margins
- Mergers and acquisitions swept the sector as a result of increased pressures for greater capitalization and size
- The merger in June between Italian giant UniCredito SpA and HVB, Germany's second largest lender, was the region's biggest cross-border banking deal, creating a powerful force in the heart of Europe
Industry Profile - Key Points
- Almost one third of credit institutions (CIs) that were active ten years ago have since disappeared as a result of consolidation
However, despite the reduction in the number of banks, the number of branches has remained stable or even increased
- During 2004, Europe's 18 major banks reported combined total assets of about -11,340.3 billion (US$13,782.5 billion), some 33.7% higher than the -8,478.8 billion (US$10,304.8 billion) in 2003
HSBC Holdings Plc once again led the sector with total assets of -1,069.92 billion (US$1,300.3 billion) - 9.4% of total combined assets
- Wealth and asset management remains a strong plank in Europe's banking platform
Over the past few years, retail banking has been the main driver of growth, particularly in the UK
- Due to globalization, consolidation, deregulation and diversification, the banking industry has become more complex and competitive
- More regulations are expected due to the pressure on governments to curb financial crime, mismanagement and poor governance
- The European Banking Federation (FBE) has played a vital role in the industry, particularly over the past four decades in the European consultation process
Market Trends and Outlook - Key Points
- Job losses are on the rise as a result of the drive to trim costs to further enhance their balance sheets
- Although outsourcing is a growing trend across all sectors, the outsourcing scene is dominated by banks, which account for the lion's share
- Even though outsourcing is set to gather pace among banks in Germany, Spain and France, outsourcing is prevalent among UK banks
- Islamic banking products have started to gain wide acceptance and are a rising force in global finance
- Islamic banks operate in accordance with Syariah law based on no-interest policies, risk and profit sharing basis and ethical provisions
Islamic bonds, or -sukuks-, are becoming increasingly popular as well
- The softening of the European economy in the second quarter of 2005 points to weaker economic growth through to the end of the year, despite the Eurozone economy growing 0.5% in the first quarter of 2005
However, due to banks- early and constructive response to the challenging environment, the industry has proved resilient and is expected to remain stable throughout 2005
- European banks will continue to reduce costs, a strategy that has contributed to increased profitability in 2003, 2004 and the first quarter of 2005
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