DBRS: European Banks Likely to Struggle to Bring Costs Down Further

Dec 5, 2018

DBRS Ratings Limited (DBRS) commented that despite challenges with revenue generation and after a period of sticky costs, major European banks generally reported improved cost performance in the first nine months of 2018. Since the financial crisis, many banks in Europe have made material efforts to enhance operational efficiency, and reducing operating costs remains a focus given the pressure on income generation.

At the same time, DBRS observes savings achieved through optimised branch networks or centralisation of back-offices, tend to be offset by additional costs linked to investments for increasing digitisation, and also, albeit to a lesser extent, regulatory costs, compliance costs, and sometimes ongoing restructuring costs. Overall, DBRS notes that banks are investing in technology, while remaining focused on absolute cost reduction.

However, DBRS anticipates operating costs are unlikely to go down further, and that the focus on cost containment will likely remain key in an environment of persistently low interest rates

Summary highlights of the full commentary titled “European Banks Likely to Struggle to Bring Costs Down Further” include:

• Banks made some progress in reducing operating costs in 9M18. However, it remains a key focus for banks given pressure on revenues.• Costs had been sticky over 2016-2017, despite branch and headcount reductions.• Given necessary ongoing investments, DBRS anticipates operating costs are unlikely to reduce substantially.