The global financial crisis of 2008-9 had a particularly devastating impact on the banking system in Europe.
The chart illustrating the 2000-2019 aggregate pre-tax profits of European banks shows a sharp dip in 2009, and a much slower recovery than other regions.
Profits started to recover in 2011 and hit $175bn – comparable to early 2000s levels – but were still less than half the pre-crisis peak of $363bn.
Profits then fell away again because of the eurozone debt crisis to $12bn in 2013 before climbing back to $226bn, but still only two-thirds of the pre-crisis peak.
"Profits started to recover in 2011 and hit $175bn – comparable to early 2000s levels – but were still less than half the pre-crisis peak"
Other regions, in comparison, performed better and their profits’ charts show a smaller dip or a levelling of profits around the time of the financial crisis, in the midst of a steady climb over the 20-year period. However, the chart of top European countries by Tier 1 capital, 2000-2019 illustrates how capital was replenished under the auspices of tighter regulations.
If you click on the Scores tab, as the majority of banks were downsizing and shedding assets after 2009, the lines slope gently upwards, rather than steeply, even falling back a bit in the past two or three years. Obviously, what risk managers and regulators care about is the capital-asset ratio and with assets being offloaded the ratio increases despite moderate capital raises.
It’s noticeable that the UK, as an international financial centre, just about manages to hold onto its leading status during the period. However, the latest Tier 1 capital data shows the French system ($395bn) only slightly behind the UK’s $399bn suggesting the UK could lose its status quite easily, according to this measure.
Spain is the country that shows the best overall performance over the time period as its major banks – Santander and BBVA – developed their international retail franchises and were less badly hit than many other major lenders by the sub-prime crisis. Spain moved from sixth place to third, increasing its capital more than fourfold to $223bn.
"The UK, as an international financial centre, just about manages to hold onto its leading status"
The table of top 10 European banks by Tier 1 capital, 2000-2019, shows that London-headquartered HSBC has held the number one spot more-or-less continuously. The other UK player Barclays is sixth.
The strength of the French banking sector is illustrated by the presence of no less than four banks: Crédit Agricole in second place (it was briefly top in 2004), BNP Paribas third, Groupe BPCE fifth and Crédit Mutuel 10th.
Banco Santander shows the most consistent upwards progression from seventh position back in 2003, then moving into the top half of the table in 2004-5 and staying there. It is currently in fourth place.
Two other banks complete the ranking: Germany’s Deutsche Bank in seventh place, despite the many challenges it has faced, and Italy’s UniCredit in ninth, exactly where it was in the early 2000s.
"The strength of the French banking sector is illustrated by the presence of no less than four banks"
Top 1000 World Banks:
Europe's journey in the new millennium
Tiina Lee, Deutsche Bank's chief executive of the UK and Ireland, speaks to James King about the development of Europe's banking sector since the turn of the millennium, as well as the role that regulation and technology are playing in shaping its future.
CEE banks outperform their western counterparts.
The big hitting banks from Europe’s largest markets have fared relatively well in The Banker’s Top 1000 World Banks 2020 ranking. Though some have struggled to generate notable profits and opportunities for growth, most have been able to improve on their Tier 1 capital positions.
In the region’s west, this has seen the five biggest banks all post increases to their Tier 1 capital, with no bank changing position in this bracket. The UK’s HSBC still leads the pack, with $148.4bn, representing a marginal year-on-year increase of 0.83%. Two French lenders, Crédit Agricole and BNP Paribas, have secured second and third positions in the regional ranking, increasing their Tier 1 capital by 4.9% and 3.6% respectively. Rounding out the top five lenders are Spain’s Banco Santander in fourth place and France’s Groupe BPCE in fifth.
The major change among the top 25 western European banks stems from Deutsche Bank’s fall in the ranking. In the 2019 edition, the German lender placed seventh in the region and 27th in the world. In the 2020 rankings, it has fallen to 10th place in western Europe and 32nd globally. This ranking drop followed a decline of 10.3% in its Tier 1 capital.
More broadly, this mirrors the experience of German lenders in the 2020 ranking, many of which saw their capital positions fall, accompanied by a similar dip to their profits. Meanwhile, the rise of France’s Crédit Mutuel to eighth position in the 2020 regional table, up from 10th in the previous edition, mirrors a wider trend of French lenders emerging as the dominant European force in the world rankings.
In central and eastern Europe (CEE), the only notable change among the top five biggest banks by Tier 1 capital is the rise of Russia’s Gazprombank to third position. In doing so, it has pushed Poland’s PKO Bank into fourth place, while Russia’s Alfa Bank remains in fifth with no change.
Almost every Russian lender enjoyed notable gains to their Tier 1 capital positions in the 2020 ranking. For example, Sberbank, which takes top spot in the CEE, has increased its Tier 1 capital by 30.4%, to $70.7bn, while second-placed VTB Bank added 28.5%.
Meanwhile, among the top 10 largest banks, Hungary’s OTP Bank registered a significant jump up the regional rankings, climbing from ninth place in 2019 to sixth place in 2020. Conversely, Poland’s Bank Gospodarstwa Krajowego fell to 10th position in the latest ranking, from eighth place in the previous edition.
The other notable change among the CEE region’s top 25 lenders is the rise of Ukraine’s PrivatBank. In the 2019 ranking, the bank came in 18th place, whereas in the 2020 edition, it has risen to 12th position. This follows the lender’s improving performance and healthier growth trajectory in the wake of scandal involving the previous owners of the bank.
In general, financial institutions from across CEE have posted a strong set of results in the 2020 ranking, with most having improved their capital positions. This bodes well for their capacity to deal with future uncertainties and support the markets in which they operate.
Top 1000 World Banks 2020 Europe
The diverging fortunes of European banks has been laid bare in the 2020 Top 1000 World Banks Ranking. French lenders have emerged triumphant, posting solid capitalisation, growth and profitability figures. In Germany, most banks have struggled to turn a profit, while outside the euro area, in the United Kingdom and Russia, the picture is decidedly mixed. James King discusses the key trends from this year's ranking.