With prolonged ultra-low interest rates affecting European banks’ revenues, in 2020 it will be key for banks to reduce operating costs further, while maintaining necessary investments in IT, regulatory and compliance requirements. Other key themes that DBRS Morningstar considers important in 2020 include the importance of banks having adequate controls in place to manage operational risks, regulators and investors making increasing demands on banks to recognise the impact of climate change, and further reductions in non-performing loans (NPLs) in high NPL countries.
Key highlights from DBRS Morningstar’s commentary “European Banking: Key Themes in 2020”:
• European banks have been operating in an ultra-low interest rate environment since 2014. With asset growth likely to stagnate in 2020, the negative impact of ultra-low interest rates on revenues will continue. In addition, whilst European banks have generally been passing on negative rates to corporate depositors, it is not yet clear how this could impact the customer relationship.
• Given the tough revenue environment, it will be key for large European banks to reduce operating costs further, while maintaining investments to address increasing competition, regulatory and compliance requirements.
• We see operational issues as another key theme for 2020. As well as increased operating costs and other negative impacts resulting from money laundering and sanctions violations, we also see cyber-attacks and data breaches as key sources of operational risks.
• We expect the regulatory frameworks for European banks to increasingly encourage them to contribute to sustainable development objectives and to manage Environmental, Social, and Corporate Governance risks.
• Gross NPLs in high NPL countries will continue to decrease thanks to government measures, notably with Portugal and Greece set to further significantly reduce non-performing loans in 2020.
“In an environment of prolonged ultra-low interest rates affecting European banks’ revenues, in 2020 it will be key for banks to reduce operating costs further. And given the importance of banks having adequate controls in place and the high costs incurred when they fail, we see operational risks as another key theme for 2020. Meanwhile Environmental, Social, and Corporate Governance areas are emerging as important drivers for investors and regulators, making increasing demands on European banks to recognise the impact of climate change. Lastly, we expect gross NPLs in high NPL countries to continue to decrease in 2020.” said Vitaline Yeterian from DBRS Morningstar’s Financial Institutions team.
Press release by DBRS Morningstar
Publié le 14 janvier 2020