Tuesday 22 January 2019

Banks face bleak future despite cost-cutting - Moody's

Mario Draghi
Mario Draghi

Gretchen Friemann

Ratings agency Moody's has painted a bleak picture of the European banking sector and said the pressure to cut costs in the face of tougher regulations and historically low interest rates looks set to persist.

The bearish assessment came as the ECB's Daniele Nouy rapped Cypriot banks over the knuckles for failing to wrestle down their comparatively high stockpile of non-performing loans (NPLs).

Her remarks are likely to be closely monitored by the Irish banking sector here as lenders continue to hold comparatively high volumes of NPLs compared to the EU average.

The domestic banks are under acute pressure to reduce the backlog almost a decade after the crash.

Ms Nuoy, who heads banking supervision at the ECB, said Cypriot banks had shown uneven progress in handling the problem and that there was a "rigorous framework" for all the banks it supervised.

Recent proposals by the ECB on how to tackle future soured loans has triggered disagreement in the bloc, particularly from countries whose banks are already sitting on mountains of toxic debt.

Aside from the burden of NPLs, Moody's set out the challenges confronting the sector in a report entitled 'Europe's banks' cost-cutting has yet to bear fruit'.

According to the ratings agency, the region's rebounding economy offers little relief to the industry's ongoing margin squeeze, despite swingeing cutbacks and greater consolidation in the aftermath of the crisis.

The agency pointed out that Ireland's banks, alongside those in Belgium, Finland, the Netherlands, Norway and Sweden, had succeeded in tackling overblown cost structures but described these improvements to the cost-income ratio - a key measure of efficiency - as "mostly from already low levels".

The Moody's report showed the sector had performed worse than its US peers during the 2010-2016 period, with the banks' aggregate cost/income ratio in the eurozone rising by almost 7pc to 68pc, compared to a 4pc increase to 65pc across the Atlantic.

It argued that the "continuing cost challenges" would stimulate further consolidation in the sector but questioned the advantages of scale. (Additional reporting, Reuters)

Irish Independent

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