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European banks unlikely to achieve ambitious RoE targets: Moody’s

first_imgJames Langton European banks are unlikely to achieve the sorts of robust returns they are seeking, given the prevailing economic conditions, says Moody’s Investors Service in a new report. In the wake of the financial crisis, European banks’ return on equity (RoE) has fallen sharply, the rating agency reports. It notes that median RoE has decreased from around 20% in 2008 to low single digits in recent quarters for the European banks that make up the EURO STOXX banks index. Keywords Banking industry Over the medium term, banks are looking to start generating double-digit returns once again, says Moody’s. Yet, it warns that achieving these sorts of results is not likely. Moody’s says that it does not expect return on assets (RoA) to “rise sufficiently to allow banks to reach their RoE targets given the expected weak economic recovery in Europe.” “Even under optimistic RoA estimates, RoE would remain below most banks’ current medium-term targets,” says Marie Diron, senior vice president in Moody’s macro financial analysis team. Instead, she says that weak profitability will likely continue over the next 12 to 18 months. “RoE that is persistently below target has the potential to dent demand for banks’ equity, which would have negative consequences for their financing conditions,” she adds. High debt levels threaten banks’ strong results: Fitch Related newscenter_img Facebook LinkedIn Twitter G7 tax pledge may be upstaged by CBDC work Share this article and your comments with peers on social media U.S. action on climate benefits banks, asset managers: Moody’slast_img read more

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