ECB believes bank profits won't recover before 2022

Friday 27 November 2020 14:22 CET | News

ECB has released its latest stability review, predicting that Europe-based banks will not see profits return to pre-pandemic levels before 2022, according to CNBC.

Lenders in the euro zone have struggled to make sizeable profits over the last decade following the 2008 global financial crisis, with stronger regulatory scrutiny and low interest rates. However, the recent coronavirus-induced crisis has worsened bottom lines further and that will continue to be felt over the coming months, according to the European Central Bank. Market expectations point to an overall return on equity (ROE) — a measure of banking profitability — of 1.7% in 2020, followed by 3.1% and 5% in 2021 and 2022, respectively. The ROE of euro area banks stood at around 6% in June of 2019, according to ECB data.

The coronavirus pandemic and the subsequent stay-at-home orders have dented economic activity, which has in turn limited the financial system. Consumers and businesses become wary of taking on big expenses in a downturn and investment decisions are put on hold. Three pharmaceutical companies have recently announced their COVID-19 vaccines will be ready for distribution until 2021. However, there is still some uncertainty as to when vaccinations will start, which parts of the population will get it first and, more importantly, when economies will return to normal levels of activity.

The banking system is seen as a key element to support the economic recovery in the wake of the pandemic. Many businesses will be looking for new funding to rebuild their work after months of being on stand-by. However, interest rates — which are what banks charge for lending money — are expected to remain low as the ECB continues with its ultra-loose monetary policy.

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Keywords: ECB, European Central Bank, bank, profits, lender, ROE, pandemic, COVID-19, banking, vaccine
Categories: Banking & Fintech
Countries: Europe
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