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The Europe Banking Sectors : A Company and Industry Analysis (February 2006)
Mergent, Feb 2006
This report looks at the banking industry in Europe, with a focus on France, Germany, Italy, the Netherlands, Spain and the United Kingdom
Current Environment - Key Points
- Despite facing continuing risks and vulnerabilities such as the volatility in oil prices, uncertainty over interest rates and several regulatory changes, the European banking sector maintained its strength and stability
- On December 1, 2005, the European Central Bank (ECB) raised its key rates by a quarter-point to 2.25% - its first rate hike in more than five years - to maintain price stability and steady medium to long-term inflation expectations
- Continuing a trend that began in 2003, European bank profitability further improved, among both the weaker banks as well as those in many member states where economic growth rates were less favorable
- Leading European stock markets rose again buoyed by higher banking shares and underpinned by easing oil prices which helped to dampen concerns over the effect of high energy prices on company margins and raise the hopes of better earnings
- Following an increase in revenues, the cost-to-income ratios of most leading European banks continued a healthy trend
- There were many obstacles to cross-border deals during the first half of 2005, including political and cultural differences and different legal, regulatory and tax systems
Industry Profile - Key Points
- The consolidation process in the European banking industry has contributed to a significant shrinkage in the number of banks since 1994, yet only a moderate reduction in the number of branches
- In 2005, Europe's 18 top players reported combined total assets of about -12,544.4 billion (US$15,122.6 billion), some 10.6% higher than the -11,340.3 billion (US$13,671.1 billion) reported in 2004
HSBC Holdings Plc once again led the sector with total assets of -2,120.7 billion (US$2,555.9 billion), representing 15.8% of the total combined assets
- Financial institutions have extended their reach into the insurance sector and realized that the way to achieve their objectives is through bancassurance
- Following a rebound in capital markets in 2005, investment banks are enjoying bumper profits and record fee incomes and will be another area of growth in Europe
- European banks are constantly trying to broaden their retail banking operations, particularly in mortgage lending, credit cards, consumer finance and small and medium enterprises (SMEs) lending
- On January 1, 2005, the International Financial Reporting Standards (IFRS), a set of regulations on how banks report financial assets and liabilities, became effective for publicly listed banks in the EU
Market Trends and Outlook - Key Points
- The European banking industry is facing a rising tide of fraud, with card fraud particularly a problem
- The mortgage markets in Europe continue to grow at a rapid pace in most European Union (EU) member states, where the volume of mortgage loans outstanding in the region has more than doubled since 1993
- Lending for house purchases continued to accelerate in the second quarter of 2005 and, by September 2005, the annual growth rate of home loans in the Eurozone reached 10.5%, according to the latest European Mortgage Federation (EMF) quarterly review
- European banks are trying to regain the heights of IT investment seen in the late 1990s after an abrupt halt in the early years of the new century
Now, European banks have invested a sizeable chunk of their budgets in implementing process and technology changes
- After losing momentum since mid-2004, European economic growth is starting to show signs of life, with GDP up by 0.6% between the second and third quarters in 2005
The Eurozone economy should continue to gather pace in 2006
- Thanks to a low interest rate environment and their quick and constructive response to challenges, European banks should continue to have healthy balance sheets and look to their home turf for potential growth opportunities
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