The low profitability of many European banks has become a constant feature since the financial crisis.
The low profitability of many European banks has become a constant feature since the financial crisis. This reflects a range of factors that vary across countries and across banks, including the weak economic environment in Europe, stubbornly low net interest margins, high levels of non performing loans, high cost to income ratios, the impact of regulatory reform, and – for some banks – a business model that relied too heavily on the good times continuing without serious interruption.
Low profitability is both a consequence and a cause of the weak economic environment. It weakens the ability and willingness of banks to finance the wider economy, which may in turn weaken further the overall economy.
This paper analyses the key drivers of bank profitability both theoretically and empirically, using the same data set as the KPMG Peer Bank metrics.
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