European banks are scrambling to benefit from rapidly changing consumer habits, notably the switch to Internet and mobile banking. New technologies such as biometrics and voice recognition are now central to raising the customer experience to a new level, and most leading banks are developing multichannel relationships with their customers. This also allows for branch closures and other long-term cost efficiencies.
At the same time, more banks have moved from deleveraging and shrinking their balance sheets toward expanding the loan book. After five years of strengthening their capital buffers—there was a rash of share issues and capital raising ahead of the ECB’s stress tests—they are now in a more confident, expansionist mood. And while previously customer demand has been weak, Europeans’ appetite for loans seems to be strengthening, thanks to the central banks’ adopting an ultra-loose monetary policy.
Geopolitical risks remain, as banks with exposures to Greece, Russia and Ukraine know only too well. But across most of Europe business conditions are improving.
REGIONAL WINNER | ING
ING posted a strong set of 2014 results and moved further down the road towards its goal of empowering its customers through innovative systems and products, these forming part of a seamless multichannel offering supported by simplified and more-cost-efficient processes.
It also successfully shed more noncore businesses, made the final repayment of its bailout funding to the Dutch state and reinstated the dividend. Chief executive officer Ralph Hamers notes that ING “comfortably passed the ECB’s latest comprehensive assessment” and that “the outcome reflects our strong capital position and resilient balance sheet” (the bank’s Tier 1 capital ratio rose from 10.4% to 11% fully loaded). Underlying net profit was up by 8.5% to more than €3.4 billion ($3.6 billlion), driven by higher net interest income and lower risk costs.
Vice chairman Koos Timmermans adds that “in 2014 we introduced initiatives to help people gain a better insight into their finances. We also supported customers’ financial needs as well as SMEs’ and large companies’ growth with €15 billion of new lending.”
Ralph Hamers, CEO and chariman
Andorra | MoraBanc
Family-owned MoraBanc claims to be the most solvent of the five private banks operating in the Pyrenean principality, where a recent scandal over money laundering prompted CEO Pedro González to comment “from not knowing where Andorra was, within nanoseconds global markets were able to discriminate.” His own bank was recently rated A- by Fitch and, according to the latest figures available, had €6.7 billion of assets under management, generating a return on assets of 1.9%.
Pedro González Grau, CEO
Austria | Erste Bank
Austria’s largest customer-facing banking group (thanks to its extensive network of Sparkassen branches), Erste Bank grew its customer base by 2% and extended 2.5% more loans last year than in the previous. Interest income went up by 10% to nearly €1.6 billion, while commission income was up by 7.7% on the back of increased contributions from its securities and insurance businesses, as well as enhanced fees associated with new lending. Customer deposits rose by 1.3%, but with low interest rates still in effect, many customers switched into Erste’s “You Invest” managed fund, which booked strong inflows. Corporate lending grew by 4.1% on increased demand, costs were contained, and this fed through to operating earnings of €947 million—an increase of 16% on the previous year’s result.
Andreas Treichl, CEO and chairman
Belgium | ING
ING Belgium again performed strongly on the back of volume growth and improved margins on both lending and savings products. Total underlying income rose by 7.3% to €2.5 billion, net interest income rose by 8.6%, and the bank’s lending portfolio grew by €5.1 billion. Underlying pretax profit rose from €663 million in 2013 to €844 million. In a country that leads the way toward being a cashless society, ING Belgium’s award-winning Smart Banking app for tablets is immensely popular and has been downloaded 800,000 times, while a new app for private banking customers combines portfolio reporting with a secured Web repository of market information.
Rik Vandenberghe, CEO
Cyprus | Hellenic Bank
Since the Cypriot banking crisis, Hellenic has gone further than most of its peers in rebuilding its balance sheet and strengthening its capital buffers. A successful rights issue last November raised more than €200 million, and the bank is now close to passing stress targets even in an adverse economic scenario. The core Tier 1 ratio stood at 13.5% at year-end. Nonperforming loans have stabilized, and although provisioning for impairments was down, the level of coverage improved to 48%. Underlying businesses are performing well, with customer deposits up by 15%. Before provisioning, the bank’s operating profit increased by 22% to €158 million, but after write-downs it recorded a loss of €119 million. With good liquidity, the bank is committed to assisting in the recovery of the Cypriot economy in 2015 by extending its lines of credit to viable businesses and households.
Bert Pijls, CEO
France | Crédit Mutuel
This federation of mutual banks had another very solid year in 2014, with net income up 11.4% to just over €3 billion thanks to a combination of strong sales and rigorous cost controls. Despite the prevailing low-interest rate environment, overall savings rose by 6.9% and customer deposits rose as well, by 4.8%. The bank grew its loan portfolio by 4.3%. Widely considered France’s safest bank, Crédit Mutuel further strengthened its balance sheet, ending the year with a Tier 1 capital ratio of 15.5%. The bank emphasizes the relationship of trust with its members and customers, and a recent survey put it at the head of banks preferred by French nationals. Technology remains central to its growth strategy, and it has recently upped its online presence using social networks, notably an after-sales service to answer customer questions via Facebook and Twitter
Michel Lucas, group chairman
Germany | DZ Bank
Germany’s largest cooperative financial network, DZ Bank Group put in an impressive performance last year. Profit before tax of €2.9 billion was an all-time high and represents an increase of nearly 30% year-on-year. CEO Wolfgang Kirsch acknowledged this strong result outstripped expectations and attributed this to “a good operating performance ... fostered by factors such as the robust economy in our German home market and the comparatively relaxed situation in the capital markets.” This allowed the bank to strengthen its capital ratios significantly, and the core Tier 1 capital ratio now stands at 12.2%. Kirsch warned that this year’s earnings are more likely to be “in keeping with our inherent profitability.” The bank plans to continue to defend its market position through innovative and customer-friendly procedures.
Wolfgang Kirsch, CEO
Greece | Piraeus Bank
In a difficult year for the country and its financial sector, Piraeus Bank achieved a profit of more than €1 billion before tax and provisions. This partly reflects continued cost-cutting, with an overall 12% reduction in operating expenses, excluding one-off integration costs. Staff costs were down 20% year-on-year, excluding the impact of voluntary exit schemes. However, revenues also rose, with net fees and commissions income up 5% on a recurring annual basis. By the final quarter operating revenues were showing 3% growth. Deleveraging has continued while nonperforming loans have trended downward, and coverage has improved significantly, although—like other Greek banks—Piraeus has suffered recently from deposit withdrawals. Its Basel III capital adequacy ratio stands at an acceptable 12.5%.
Stavros Lekkakos, CEO
Ireland | Bank of Ireland
Ireland’s most strongly capitalized lender achieved an underlying profit of €921 million in 2014 with all trading divisions profitable—an improvement of nearly €1.5 billion over the previous, loss-making year. The bank increased its new lending by more than 50%, while net interest margins rose above 2% over the year. Overall, the cost/income ratio fell again, but at 55% it is still relatively high, and more improvements can be made. However, the turnaround in Ireland’s economy has helped reduce the legacy of bad or impaired loans, so that over the year defaulted loans decreased by an additional €2.8 billion. They are now more than 20% below peak levels. Having passed the ECB stress tests, Bank of Ireland remains the country’s strongest bank, with a fully loaded Tier 1 capital ratio of 9.3%. CEO Richie Boucher points out that the bank has to date returned some €6 billion to Irish taxpayers, considerably more than the €4.8 billion bailout, and is the largest investor in Ireland’s economy.
Richie Boucher, CEO
Italy | Intesa Sanpaolo
Italy’s market leader put in a strong performance in 2014. Pretax revenues of €3.4 billion were 36% up on the previous year, with all parts of the banking group showing improvement. Banca dei Territori, its largest division, moved from a €239 million loss in 2013 to contribute more than €1.6 billion. Income from private banking and insurance grew by 12.4% and 23.7% respectively, while the sizable but capital-light asset management business increased its contribution by close to 35% and is likely to benefit further from QE’s beneficial impact on European bourses. Overall operating margins improved by 5%, net interest income by 3% and fees and commission by 10.5% in 2013—the best result since before the financial crisis. The bank is simplifying its branch network, developing more electronic channels, such as its new e-commerce portal, and continues to bear down on costs. Its cost/income ratio of 50.6% is better than that of most of its peers. And it is probably the most strongly capitalized of Italian banks: Having taken the hit on impaired loans, it scored highly in the ECB’s stress tests.
Luxembourg | Banque et Caisse d’Epargne de l’Etat
Luxembourg’s most popular bank—it has a banking relationship with more than two-thirds of all residents in the Grand Duchy—BCEE had a good year despite the general slowing of the economy. Group net income rose by 16.1% to nearly €170 million in the first half of 2014, and fee income by 3.2%. Judged one of the world’s safest banks, BCEE has continued to reinforce its shareholder equity by a further 12% to nearly €4 billion and has a core Tier 1 ratio of 15.38%. The bank continued to grow its range of focused products and service offerings with the launch of the axxess savings account for clients between 18 and 30, and its Fit4Future savings account, which aims to help young people build a start-up capital sum.
Jean-Claude Finck, CEO and president
Malta | FCM Bank
Fast-growing FCM saw a 55% increase in the number of its accounts last year. It was also a high-performing year in terms of deposits, which increased by 36% to over €23 million. This was achieved by consistently offering competitive interest rates while spending less on banking infrastructure and marketing. Overall, the cost per account was reduced by 41%. Operating only in the highly competitive Maltese marketplace, FCM focused on innovation, offering the only savings account giving customers a bonus after 12 months. Much emphasis is placed on customer rapport.
Ron Huggett, CEO
Netherlands | ING
The Dutch retail bank recorded an underlying pretax profit of more than €888 million, an improvement of 6.5% on the previous year, on the back of a 6.8% rise in net interest income and lower risk costs .The rapid move to digitalization raised operating costs, both through higher IT spend and provisioning for redundancies, though these will result in future cost savings. Risk costs declined by 18.6% as a gradual economic recovery benefits both mortgage and business lending. The bank has increased transparency right across its product range so as to enable customers to make clearer choices and has introduced a seamless service across all banking channels, allowing customers to switch between channels without interruption to their data. And with the pilot launch of “Inge,” a voice recognition feature that listens and responds to simple instructions, customers can do their banking by talking to their mobile or tablet.
Nick Jue, CEO
Portugal | Banco Santander Totta
Portugal’s best-capitalized bank, Santander Totta gained market share in 2014, as the number of new mortgage loans granted increased by 18% in a more dynamic marketplace. Corporate lending also rose 0.7%, a good showing against a general background of companies deleveraging. Deposits grew by 5.6%, and net interest income increased by 6.2% to €546 million. This growth in recurring business combined with lower costs of credit and impairments to boost net income by 89.2% to €193 million—though this includes a substantial gain in the last quarter from the sale of 51% of the bank’s life and nonlife insurance portfolios. The bank’s core Tier I ratio stood at a comfortable 13.3%.
António Vieira Monteiro, chairman
Spain | CaixaBank
Already the largest bank in its domestic market, with a customer base of 13.4 million at year-end 2014, in January of this year CaixaBank gained a further half-million customers through its acquisition of UK lender Barclays’ retail, asset management and corporate banking businesses in Spain. Net interest income increased by more than 5%, as did customer deposits, and overall income before loan impairments more than doubled. The bank continues to pursue its multichannel banking strategy successfully, with over half of all transactions now through e-channels and only 8% in branch. Its Linea Abierta is Spain’s leading online banking system, gaining a third of all users, while its mobile platform, CaixaMóvil, handled 750 million transactions for some four million customers. CaixaBank also became the world’s first bank to develop an app for smartwatches. La Caixa foundation is the leading private foundation in Spain and the second-largest in Europe in terms of grants, with around €500 million awarded annually.
Gonzalo Gortázar, CEO
Switzerland | UBS
UBS’s net profit increased last year by 13%, topping SFr 3.6 billion ($3.7 billion), although CEO Sergio Ermotti acknowledged that January’s surprise decision by the central bank to abandon the cap on the Swiss franc would negatively impact this year’s earnings. The rise in profitability was spread across divisions, with both wealth management and retail & corporate banking up by 4%, while earnings from investment banking were 8% stronger. Cost-cutting continues, with plans to reduce spending by moving IT and other functions to less costly centers. UBS continued to reduce risk-weighted assets and improve its leverage ratio. Its core Tier 1 capital ratio stood at over 13% at the year’s end, exceeding targets and coming out best among its peer groups. Ermotti commented that “our capital is strong and we’ve completed our strategic transformation, preparing us well for the future.”
Sergio Ermotti, CEO
United Kingdom | Lloyds Banking Group
Being a strongly UK-facing retail and commercial bank helped Lloyds lift its underlying profit by 26% to £7.8 billion ($11.5 billion), and the bank is paying a dividend for the first time since it was bailed out during the financial crisis. The result reflects the group’s success in shedding noncore activities and cutting its cost base by a further 2%, so that the cost/income ratio comes out at a competitive 51%, thanks to a combination of improved asset quality and lower impairment charges. Net interest income rose by 8% on improved margins, the return on risk-weighted assets increased to above 3%, and the bank continued to strengthen its capital buffers. The result: Its core Tier 1 capital ratio improved by 2.5% to 12.8%, after accounting for the dividend. Lloyds built on its market leadership in key lending segments, with new mortgages up by 13% and lending to midsize corporates and SMEs up by 2% and 5%, respectively. Most competitor banks saw a downturn in lending to such companies. The focus is on digital-based growth—the number of active online customers has rocketed, and Lloyds is investing a further £1 billion on upgrading capabilities and developing new products, such as its recently launched online car finance platform.
António Horta-Osório, group CEO