Net interest margins (NiMs) at most of Europe’s largest banks have likely peaked, according to a report by Fitch Ratings. The report notes that while most of the 20 major banks tracked in Fitch’s latest quarterly credit review showed solid performance in the first quarter of 2024, a slight decline in profitability is expected this year, with the median NiM likely peaking at 1.5%. However, trends will vary between banks and countries.

In the first quarter of 2024, the average operating profit/risk-weighted assets ratio remained stable year-on-year, and Fitch anticipates only modest declines in 2024 and 2025. Profitability is projected to remain well above 2022 levels despite interest rate cuts by the European Central Bank and the Swiss National Bank in the first half of 2024. The Bank of England is expected to follow suit in August, though further cuts will likely be gradual, supporting banks’ profitability.

Other factors supporting profitability include growth in fee income, higher returns from replicating portfolios and hedging strategies, and reduced contributions to resolution and deposit guarantee funds. There are also signs of a recovery in new lending in some countries. Loan impairment charges are expected to see only slight increases, averaging 12% of pre-impairment profit in the first quarter of 2024.


The European banking sector is also witnessing renewed consolidation prospects. BBVA’s hostile bid for Banco de Sabadell, which would create Spain’s second-largest bank by domestic market share, has sparked interest in further consolidation.

In the UK, four medium-sized acquisitions have been announced this year, indicating growing shareholder openness to acquisitions due to improved business and financial prospects and increased confidence in Europe’s economic recovery.

However, Fitch expects most deals to be bolt-on acquisitions rather than large-scale mergers. Challenges for large mergers include restricted fungibility of liquidity, difficulty in achieving cost synergies, and complications arising from the links between bank and sovereign risks.

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European banks resilient as they face 2024 economic landscape: Fitch