Global banking industry finally returns to profit, BCG study shows

The global banking industry has moved beyond recovery and regained overall profit for the first time since the financial crisis, although European lenders are still lagging far behind rivals, an industry study showed.

"Banks in North America are again growing and showing sizeable economic profit, while those in Europe show little sign of recovery," Boston Consulting Group (BCG) said in its Global Risk 2014/15 report. Economic profit (EP) is a measure of profitability that includes refinancing, operating and risk costs against income.

Banks generated an EP of €18 billion (HK$174.18 billion) in 2013, or 3 basis points of total assets, compared with negative EP of between 6 and 23 basis points in the previous four years, BCG said. Its latest study was based on more than 300 banks, representing over 80 per cent of global bank assets.

Banks in North America produced an economic profit of €25 billion, and profitability also improved in the Middle East and Africa. The study said that banks in Asia-Pacific produced the biggest EP of €112 billion, near flat from 2012. Banks in Europe delivered negative EP of €136 billion last year, from negative €161 billion in 2012, to take their losses since 2009 to €600 billion, the study said.

Euro-zone banks have been slow to rebuild their capital strength and restructure against a difficult economic backdrop. Improving their profitability is their biggest challenge and they may need to sell off more loss-making units, the euro bloc's top banking supervisor said.

BCG's report said banks are entering a new era of regulation in which every region, product and legal entity will be closely regulated, reflecting regulators' intent to trigger cultural change.