Banks concerned about profitability and the sustainability of their operating models

Abstract

The year got off to an uncertain start for the European banking sector, and market turbulence was strong in the first half of 2016. The uncertainty has reflected increased concerns about the growth prospects for the global economy. Rising credit risks in the energy sector, weak market liquidity and uncertainty about monetary and economic policies’ ability to support economic growth have increased market volatility. Uncertainty over global growth prospects has also focused strongly on the banking and financial sector, which is particularly sensitive to changes in the economic outlook. Although the profitability and liquidity position of the European banking sector has improved on average in recent years and capital adequacy has advanced, the banking business is facing numerous risks both in the short and the long term. Banks' long-term profitability and the sustainability of their operating models have been singled out as special causes for concern.