The analysis of the financial statements relating to the 2018 financial year of the major banking groups operating in Europe shows a scenario of improvement of the fundamentals of the sector, visible in particular in terms of asset quality. However, some areas of attention are not lacking, mainly due to the unfavorable evolution of the international economic scenario that has been manifesting since the second half of the 2018.
The Report examines the European banking markets in terms of balance sheet, income, productivity and efficiency through the analysis, between the 2006 and the 2018, of the consolidated financial statement data relating to a sample of 112 banking groups, equal to approximately the 75 % of the European market.
The main evidences described in the Report outline a framework in which the positive aspects prevail, above all in the comparison with the recent past, even if there are some areas of attention, mainly induced by the unfavorable evolution of the economic framework that has been manifested since the second half of 2018.
Overall, the 2018 trends show an improvement in asset quality and a reduction in credit risk, in a context of capital strengthening and recovery in income results, which however remain below the 2007 pre-crisis levels. The main factors of uncertainty that could be contrasted with this favorable cyclical intonation are attributable to exogenous elements in the banking industry. Among these, the possible repercussions of the current economic slowdown and the effects of a regulatory environment that is still in strong evolution appear to be particularly relevant, with the first ones limiting the recovery of credit demand in support of investments and the second that risk affecting the offer of credit.
More in detail, the analysis shows that despite the increase in European banks that close the year in profit, the performance levels remain limited. In particular, the percentage of European banks that closed the 2018 at a loss seems to have returned to the pre-crisis 2007 physiological levels, equaling the 9%, far from the 30% reached in the 2012. The figure assumes particular value with reference to the traditional commercial banks of the southern European countries, which have suffered the most from the effects of the crisis of the real economy. In this case, in fact, compared to the peak of 2012, when more than 1 bank on 2 was at a loss, last year only 1 bank on 10 found itself in this condition.
Differentials, in terms of risk and profitability, therefore tend to fade among the large European banks. The most recent data indicate that the European banking sector, despite the complex macroeconomic context, is evolving towards a structure in which the traditional commercial bank model prevails. This is a phenomenon of particular interest to the countries of the European Union, where economic growth, more than in other geographical areas, needs a strong banking sector, oriented to support families and especially businesses, especially small ones and medium-sized companies that, in the absence of a well-developed European capital market, find in the banking sector the main, and sometimes exclusive, source of financing for their investments.
In terms of profitability, the return on invested capital (Return On Equity, ROE) is around 6,6% in aggregate terms in Europe, up by around 50 base points compared to 2017. Net of extraordinary charges and revenues, the ROE would be equal to 6,7%, with an increase of 80 base points in the year. The improvement in economic results was achieved above all thanks to the reduction in adjustments and the careful management of operating costs against a slight reduction in overall revenues. Nevertheless, it should be noted that the number of large European banks capable of producing levels of performance above the so-called cost of capital continues to be modest, about 1 on 3 in the 2018, against 8 on 10 before the crisis.
The trends emerging for banks operating in Italy are similar to those found in other European markets. In particular, one of the main features of the most recent dynamic of Italian banks is the strong improvement in asset quality, in terms of both flows and stocks. In detail, in the fourth quarter of the 2018 the flow of new non-performing loans to total loans fell to 1,4%, in line with the average values of the two-year period preceding the start of the crisis. The stock of non-performing loans also showed important signs of improvement: the amount of impaired loans expressed net of impairment losses already computed in bank accounts (net NPL) in December 2018 stood at around 90 billion, down from 129 billion a year earlier (-30%); on the same date, the net NPL ratio had fallen below the 4,3% from the maximum point of the 9,6% at the end of 2015.
Looking ahead, asset quality forecasts continue to be positive. The ABI analysis indicates that the NPL ratio convergence process towards pre-crisis levels should continue despite the less brilliant cyclical tone of our economy: at the end of the 2022, the index should stand at 2,4%, even slightly lower than the 2007 data.