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Banking

Western Europe: McKinsey models five-year bank ROE slump

UK banks’ returns on equity will still be below pre-virus levels in 2025, while CET1 ratios across Europe could fall to 8%.

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European banks’ returns on equity (ROE) face a five-year slump, with UK banks still well below their pre-Covid-19 profitability in 2025, according to new research from McKinsey.

ROE will remain as low as about 7% in the UK and 5% in the European Union, according to the consultancy.

Across Europe, banks could see their common equity tier-1 (CET1) ratios fall as low as 8%. That compares with CET1 ratios going into the crisis of around 12% or 13%. Today, BBVA suffers the lowest CET1 ratio of European banks, according to Berenberg, with 10.8%.

McKinsey’s report, which is based on its own economic modelling as well as a survey of more than 2,000 senior executives in banking and other industries, takes an unusually long and bearish view on the sector. It is based on a eurozone drop in GDP of 11% in 2020, with a recovery in late 2023. It takes into account government stimulus, but not the possible reaction from banks’ management.




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