European bank shares have done well so far this year, up around 6% (Photo: Guillaume Périgois for Unsplash)
Advance Outlay It’s not a panacea for European banks as some might think, and the sector needs patience. Bank shares in Europe Good performance so far this year, up about 6% even in the face of bear markets across the board.
There are expectations of higher interest rates, although the eurozone lags behind compared to the UK and the US, with higher interest rates, banks tend to increase their income. But this is no longer so simple.
Extraordinary financial support measures put in place in response to the pandemic must be withdrawn, until bank returns return to normal.
In the midst of the health crisis, European banking regulators have put in place rules to ensure the proper functioning of the “financial pipeline”, in order to ensure that banks continue to lend and maintain healthy capital reserves, with interbank exchange rate adjustments, lowering capital requirements and also the use of veto power (veto) in dividends and bonuses.
The measures helped to avoid a crisis in the sector. Now is the time to gradually reduce subsidies. The ban on shareholder returns has already been lifted, which should generate a flurry of buybacks and dividends this year.
However, rolling back other policies is likely to take more time, and it is difficult to predict how the process will affect banks’ profits. From now on, higher interest rates should mean greater profits for the banks. In the short term, they may have to make do with share buybacks and dividends.
