Guy Hoffmann estimates that the problem of declining bank profitability is not sufficiently taken into account by the government. Romain Gamba/Maison Moderne

Guy Hoffmann estimates that the problem of declining bank profitability is not sufficiently taken into account by the government. Romain Gamba/Maison Moderne

The spectacular fall in net earnings of the banking sector is partly explained by the volume of provisions made by financial institutions: €600m. These provisions are intended to respond to credit risk in the context of covid-19. A leading indicator of bankruptcy expectations made by banks specialising in corporate finance. An amount that is in itself a message to the government for maintaining measures to support the economy, or at least for an orderly withdrawal of such support.

Fears of mergers, restructuring, even closures

The other takeaway from the 2020 balance sheet drawn up by the ABBL is the structural decline in banks' profitability since 2014.

"An alarming trend which must be recognised," explains ABBL board of directors chairman Guy Hoffmann, who adds he expects a further rationalisation of the sector through mergers, restructuring, "even closures".

The ABBL blames this drop in profitability on the rise in regulatory costs, the negative interest rate environment that has persisted since 2008 and also on the investments required for the digital transition of banks--made all the more urgent by the pandemic. These are all elements which, when added together, exert "strong pressure on the margins".

Appeal to the government

This is, for Hoffmann, a risk to the economy that the government does not consider to be sufficiently taken into account, that he wants to "raise awareness". Raise awareness of the need to remain “attractive”. What passes by the fact that the sector "should not be confronted with a rise in taxes". 

“Any increase in taxes would automatically affect our competitiveness,” Hoffmann warns.

He also stresses the importance of attracting skills to the marketplace and taking action in terms of infrastructure, schools and housing. On these last two points, he praises the government. Good points as well for teleworking: “Banks now have a solid framework for working from home, and we have succeeded in ensuring that the law is not too prescriptive, which leaves the banks the freedom to choose how to implement homework in the future. 

However, he belies, "the sector remains strong and extremely important for the national economy. "

€700.5b in the coffers

The current outstanding loans reach €692b. That is €27b better than in 2019. Banks will have released 28.2b in business loans and 36.3b in mortgage loans this year. Deposits also increased, from 658.5b in 2019 to 700.5b in 2020.

Support for the economy has strengthened with the crisis. At the height of the health crisis last July, moratoria granted to companies reached €3.7b. This figure fell to €462m in February 2021. And, over the period, 262m covid loans were also granted, to which must be added 189m loans guaranteed by the State.

Private banking is also doing well with €466b in assets under management. That is to say a doubling of assets since 2008, “the result of 11 consecutive years of growth”. 

This article was originally published in French on Paperjam and has been translated and edited for Delano.