The record annual profit was achieved due to high interest rates and an increase in commission income. And although a slowdown in profit growth may indicate that revenue has peaked, banks have managed to mitigate the impact of lower interest rates, analysts say. Many lenders have actively invested in fee-generating areas such as asset management and consulting to reduce dependence on credit transactions.
Barclays analysts noted that revenue sustainability remains in place despite the rate cuts. They predict that returns on financial assets in the sector will decrease only slightly, to 13% in 2025 from 14% last year.
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The profit growth also allowed banks to increase their returns to investors. In the first two months of 2024, 20 banks announced share buybacks worth 18.4 billion euros, which is 29% more than in the same period last year. Barclays estimates that the 40 largest banks will pay about 264 billion euros to investors over the next two years.
Spanish Banco Santander SA stands out among the profit leaders with 12.6 billion euros, followed by French BNP Paribas SA with 11.7 billion euros. Societe Generale SA showed the most significant increase in net profit, by 69%, while Deutsche Bank AG experienced the sharpest drop due to legal settlement costs.
Against the background of declining inflation in most EU countries, analysts expect a reduction in the key rate to 2.5% at the next meeting of the European Central Bank, which may have an impact on the incomes of commercial banks.
