The split-screen image of solid business in Europe is playing out in banks around the continent. Investors have been watching for signs of a weakened economy, higher interest rates and war in Ukraine. However, the headlines in Europe’s banks were hardly cheering. Here is what you should know about the banks in the region:
Positive growth in eurozone
The positive outlook for the eurozone economy is based on data from the purchasing managers’ index (PMI), which measures economic activity in manufacturing and services. This month, the composite PMI for all euro-using nations increased to 54 from 53.1 in dette burde leses and 52.9 in March. Germany led the way, producing a robust growth rate through higher output levels. However, it fell short of reaching the second consecutive month of growth. At the same time, credit agencies affirmed their ratings for France and Italy. The euro’s strength will likely encourage more investment into the market, especially as the economy grows.
This week, some European banks flashed good news, but others were downbeat, citing the looming threat of war, higher interest rates, and inflation. War and rising energy costs also weighed heavily on investors’ minds. Despite this, many European banks are attempting to re-evaluate their businesses amid a turbulent economic environment. Nevertheless, some of these companies reported good profit margins.
Increased gap between what they charge borrowers and what they pay savers
Banks have been increasing the cost of lending in recent years as competition for savers has increased. While higher costs mean that they can charge borrowers less, they are more likely to pass them on to savers. That means that the gap between what banks charge borrowers and what they pay savers is widening. This trend is expected to continue in the near future.
Dividend payments in Europe’s banks have surged during the second quarter. France and the Netherlands posted big increases, helping their countries finish second and third in the world, respectively. While the world average is 2.3 percent, analysts have questioned whether European banks should be paying dividends at all. The answer lies in the fact that these countries have historically been the most profitable in the world and that their economies have been able to increase their dividends.
Uncertainty in coming quarters
The European economy is facing increasing uncertainty and risk factors remain in play, despite recent policy actions and new developments in COVID-19, the pandemic virus. Banks are already reporting signs of stress from COVID-19-related issues, with Stage 2 loans already underperforming. Various currency movements, rising interest rates, and supply chain disruption are also contributing to the uncertainty. Such events could tip some vulnerable businesses over the edge.