Tuesday 19 September 2017

Investors sceptical on eurozone banks

AIB’s initial public offering was priced at €4.40 per share, equating to valuation of 0.9 times book, based on a projected end of 2017 net asset value – a steep premium to Bank of Ireland’s current valuation. Stock image
AIB’s initial public offering was priced at €4.40 per share, equating to valuation of 0.9 times book, based on a projected end of 2017 net asset value – a steep premium to Bank of Ireland’s current valuation. Stock image

Huw Jones

A decade after the financial crisis began, eurozone lenders remain a dampener on the sector's recovery, even as a better economy is helping global banks to turn the corner.

That's the verdict of the Bank for International Settlements (BIS), an umbrella body for leading central banks.

In its recently released annual report, the organisation warned "banking systems in some jurisdictions still look vulnerable to a further deterioration in credit quality. In a number of euro-area countries, for example, the share of NPLs (non-performing loans) remains stubbornly high".

The BIS said banks globally have made progress in cutting leverage and diversifying income, but market valuations for many lenders still point to investor scepticism.

The price to book ratio of euro-area lenders remains below one, meaning a bank's market value is less than its balance sheet, it added.

AIB's initial public offering was priced at €4.40 per share, equating to valuation of 0.9 times book, based on a projected end of 2017 net asset value - a steep premium to Bank of Ireland's current valuation.

The BIS also said the gap between observed and required returns-on-equity has narrowed, but in Europe the gap widened most recently, highlighting persistent pressure to further improve profitability.

BIS economic adviser Hyun Song Shin said European banks were also helping to give the impression that finance globally, as measured by cross-border lending, was in headlong retreat.

"The consolidated perspective makes clear that the shrinkage of international banking is largely confined to European-headquartered banks," he said. (Reuters, with additional reporting by Gretchen Friemann.)

Irish Independent

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