With the ECB maintaining its ultra-low interest rates throughout 2019, profitability remained a key challenge facing European banks. The return on equity (ROE), a key indicator to assess the banking sector’s attractiveness for investors has been slowly recovering. The ROE of European banks was 5.4% in 2019 for EU 28, down from 6.1% in 2018. Despite the decline, due to a more moderate rise in several countries compared to 2018, this remains at similar levels as in previous years albeit still far from the 10.6% registered in the outset of the financial crisis.
Reflecting on the national breakdown, all countries have a positive ROE, for first time since 2007, with six countries having a double-digit ROE, led for the second consecutive year, by Hungary (16%), Romania (15.2%) and Czech Republic (12.5%). Only Greece (0.7%) registered a result lower than 1% in 2019. The difference between the highest (Hungary) and lowest (Greece) ROE was 15.3 percentage points in 2019, very far from the 101.6 recorded in 2013 (11.4% in Czech Republic and -90.2% in Slovenia).
The ROE across EU countries diverged after 2007, signaling growing fragmentation, particularly across the Euro area. After reaching a peak in 2013 (25.8), the dispersion around the average ROE has substantially decreased. After reaching 3.5 in 2018, the dispersion is at 4.0 in 2019, still less than the 4.5 seen in 2007 before deviation started.