European banks power through uncertainties, report says
European banks’ financial performance was mainly in line with our base-case expectations, with the results from fourth-quarter 2024 broadly confirming trends that had been at play since 2023. We did not take any negative rating actions immediately after the publication of fourth-quarter earnings results (see “European Banks Power Through Uncertainties,” published today).
Major banks’ results highlight some divergences between banks that are still addressing cost or performance issues, and those that are focused on increasing and diversifying revenues, for example by increasing the share of fee income.
“The quest to increase the fee income base is not new. Large Italian banks are particularly well placed in this regard as they derive about 60% of their revenues from fees,” S&P Global Ratings credit analyst Nicolas Charnay said. “We tend to see such earnings diversification positively, as long as associated risks are well under control,” he added.
Several uncertainties–mainly related to external factors, such as trade policies or geopolitics–continue to cloud the outlook for European banks. Geopolitical risks could also reduce business confidence and lead to a disorderly repricing of risks on financial markets, with ripple effects across banks and non-banks.
On the plus side, funding and liquidity remain unaffected by ongoing quantitative tightening and macro uncertainties. Deposits from eurozone residents increased by 3% for eurozone banks in 2024 and European banks continued to benefit from easy access to debt capital markets. Issuance levels reached record highs in 2024.
These benign funding and liquidity conditions will likely prevail in 2025. We view positively that central banks seek to prepare banks for a less favorable liquidity environment, because we consider that the end of this long era of excess liquidity is prone to risks. We expect, however, central banks’ insistence that banks should be ready to access standard refinancing operations to meet their liquidity needs will come with operational challenges.
This report does not constitute a rating action.