Cost-cutting drive fails to offset European banks' revenue decline

Ribbon Cutting

European banks are cutting costs in absolute terms, but many are still failing to pull down their cost-to-income ratios, according to data from S&P Global Market Intelligence.

A sample of 17 European banks with at least €500 billion in assets shows that 12 reduced operating expenses year over year in the first quarter, yet only five saw cost-to-income ratios decline. Unhelpful markets and low interest rates have served to hit revenues and leave very few European banks earning double-digit returns.

S&P Net interest income vs operating expenses over past decade

Cost reduction features prominently in the strategic goals of many European banks, but long-term success appears debatable at best. The leading lenders' cost-to-income ratios climbed steadily during the past decade; both net interest income and operating expenses rose some 60% over the period. Net interest income has shown generally stronger growth than costs but has been weaker on a risk-adjusted basis.

S&P Operating expenses, cost income ratios at largest European banks

S&P Cost-to-income ratios for major European banks FY'05-FY'16

The full report can be accessed here:

Source: S&P Global Market Intelligence

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