Financial Services Ireland

Eurozone Forecast: Banking Outlook

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Eurozone Forecast: Banking Outlook

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

  • We expect total assets in Eurozone banks to be €30t at the end of 2014 — broadly unchanged from the end of 2013.
  • Business loans are now expected to grow by just 0.5% to reach €4.4b in 2014. But we expect growth to pick up to 3.8% in 2015.
  • Non-performing loans (NPLs) are expected to fall to 7.6% by the end of 2014, from their peak of 8% in 2013.
  • Operating income at Eurozone banks is forecast to rise by 4.2% in 2014, after 2 consecutive years of decline.

For our full EY Eurozone Forecast Outlook for financial services please see link below.

Cormac Murphy

Banking & Capital Markets, Sector Leader
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