Stellar EU banks’ performance won’t last: Analysts

PARIS: European banks may have managed to generate surprisingly solid earnings in the second quarter, but low interest rates, Brexit fears and trade war woes make a repeat performance unlikely, analysts say. Big names BNP Paribas, Barclays, Intesa Sanpaolo, Credit Suisse and BBVA all wrongfooted sector experts with results exceeding consensus forecasts.

“For many banks, earnings were better than expected,” Simon Outin, an analyst with Allianz Global Investors, said. “But it’s also true that consensus forecasts had been lowered quite a bit recently,” he said, as banks were seen struggling to thrive in their traditional credit business.

That they still managed to pull off an earnings surprise was mostly down to view that loan repayment rates are improving, justifying a reduction in funds set aside to cover risky exposure, and giving the bottom line an immediate boost. Banking on lower risk “The main adjustment variable for almost all the banks which have reported earnings are the provisions against doubtful loans which are much lower than expected,” said Jerome Legras, head of research at asset managers Axiom AI. “This in essence was what made the results better than analysts’ expectations,” he told AFP. Taking back risk provisions helped banks offset the dampening impact of a low-interest rate environment that is set to linger even as EU growth and inflation are showing signs of picking up. French bank Societe Generale said it expects to improve its risk management further throughout the year, a hint that it could take back more provisions to feed profits. In southern Europe, Spain’s BBVA and CaixaBank, Portugal’s Caixa Geral de Depositos and Italy’s Intesa SaoPaolo are all making progress in removing toxic loans from their books.