Europe's banks set for a strong 2018, claims S&P

There had been a number of positive actions for the banking sector, such as outlook changes and upgrades, in the third and fourth quarters of 2017, the US ratings agency said in a report on Friday.

That trend was predicted to continue into 2018, with 15 of the top 50 European banks currently carrying a positive outlook and just three with negative outlooks on issuer credit ratings.

Giles Edwards, S&P Global Ratings credit analyst, said: “These actions reflected principally our view of improving economic risks, helped by massive monetary stimulus from central banks, and supportive industry risks, notwithstanding the emergence of fundamental long-term business model challenges.”

The 2007 financial crisis – caused by the collapse in the sub-prime debt market – rocked the banking sector. Some banks collapsed, others had to be bailed out by governments, and all saw profits and share prices tumble.

Recovery has been slow. But S&P said the sector would be supported in 2018 by slight increases in profitability, as improved economic activity and efficiency measures offset weak revenues; better dividend paying capacity; and generally stable balance sheets.

The ratings agency also highlighted possible further divestments of government stakes in Allied Irish Bank, Dutch group ABN Amro, Spain’s Bankia and Belgium’s Belfius, and pointed to the “possible” improvement in underperforming banks such as FTSE 100 members Barclays, Standard Chartered and Royal Bank of Scotland.

However, the agency did sound a note of caution.

“European banks’ progress in areas like non-performing asset reduction and debt issuance, and the emerging improvement in economic activity, could yet be undone if political risks rise or market conditions deteriorate significantly,” said Edwards.

Other threats included the increasing prevalence of cyber attacks and “fending off nimble emerging challengers”.