The banking landscape remains ever-changing. It is increasingly uncertain that Eurozone banks will be able to achieve pre-crisis levels of credit growth in the foreseeable future. In fact, many remain under pressure to exit non-core businesses and reduce their overall leverage. This year’s forecast for bank lending growth is a mere 0.5% but – despite uncertainty around the size of capital shortfalls uncovered by the results of the ECB’s asset quality review (AQR) – lending is expected to pick up to 3.8% in 2015. This positive lending outlook is also supported by the forecast that non-performing loans (NPLs) will fall in 2014 while assets remain unchanged from 2013 at around €30t.
The ECB may also provide direct support for bank loans in the Eurozone and AQR results are likely to support a gradual recovery in lending. Ongoing improvements in market conditions and a stabilising economy have resulted in renewed growth in operating income. This will leave banks well positioned to meet increased demand for loans in the future. For 2014, however, bank balance sheets will remain under pressure.
Banking sector highlights
For our full EY Eurozone Forecast Outlook for financial services please see link below.