According to the consulting firm ZEB, European banks are expected to earn significantly more this year, primarily driven by interest income, compared to previous years. Afterward, the cumulative profit is anticipated to stabilize at a slightly lower level. According to the analysis in the latest "ZEB Market Flash," the 50 largest European banks by total assets are projected to collectively achieve an operating profit of 267 billion euros this year, which is a third more than in 2022. This increase is mainly attributed to strong growth in interest income following the interest rate hikes by the European Central Bank (ECB). The rise is forecasted to surge by 23% to 467 billion euros within a year.

In 2024 and 2025, it is expected that interest income will remain approximately at the same high level, but there will also be increasing costs due to inflation and slightly higher provisions for credit risk. As a result, the profits of European banks are likely to be somewhat below the 2023 level but still significantly higher than in previous years. While economic expectations remain uncertain, banks are not anticipating a worst-case scenario for the next year. This has led to credit loss provisions in the second quarter of this year in Europe and the USA remaining more or less stable. For the entire year, ZEB expects the 50 largest banks in Europe (by total assets) to set aside slightly more – at 54 billion euros – for credit risk provisions compared to 2022. In the following year, this figure is projected to increase to 63 billion euros before decreasing again.

According to ZEB analysts, interest rates for corporate and, in some cases, mortgage loans show initial signs of reaching their peak and stabilizing at approximately this level. However, interest rates for consumer loans and, especially, fixed-term deposits continue to be on an upward trend. Moderate increases are expected in the coming months.

Banks were among the few industries that significantly benefited from the interest rate hikes, according to ZEB. After the shockwaves sent through the financial sector by the collapse of Credit Suisse, Silicon Valley Bank, and regional institutions in the USA at the beginning of the year, the analysts noted that the recovery of the banking sector began as early as the second quarter. The analysis considered the 100 largest banks in the world by market capitalization (as of December 31, 2022).

In the quarter from April to June, Western European banks expanded their total revenues by more than 9% compared to the previous year while simultaneously reducing costs by 1.3%. This led to a year-on-year decrease in the cost-to-income ratio by 5.6 percentage points to 52.6%. US banks achieved a 7.4% increase in revenues but also saw cost increases of 3.1%. The cost-to-income ratio of US banks improved by 2.6 percentage points to 62.1%. Western European banks outperformed their US counterparts in the second quarter with a return on equity of 12.9% compared to 12.5%.