European banks have used the pandemic to begin addressing long-term profitability issues relative to their US competitors, according to the top regulator.
“There was a long period when European banks seemed to be waiting for the Gondo of interest rates to increase and rebuild their margins,” Andrea Enria, chairman of the European Central Bank’s supervisory board, told Bloomberg television.
“With the pandemic, they realized they had to take action,” he added.
European banks have failed to recover from the 2008 crisis to the same extent as their US competitors, as it has taken them longer to build up financial strength and clean up accumulated red loans.
While Enria has previously acknowledged the need to restructure Europe’s fragmented banking market, he said banks should also help themselves instead of whining about the rules.
Lack of profitability is rooted in “structural weaknesses” such as cost inefficiencies, out-of-focus business models and insufficient investment in digital technology, Enria said.
Enria also said he was “happy” that European banks had exceeded their profitability estimates for six consecutive quarters and were generating profits at pre-pandemic levels higher than their estimates.
The environment of low interest rates was positive for banks until mid-2020, but negative effects have prevailed since then and they “are likely to remain for some time”.
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Source From: Capital
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