Cost-to-income ratio of the banking industry in the EU Q2 2024, by country

European banks are showing varied levels of operational efficiency, with Portugal leading the pack in the second quarter of 2024. The cost-to-income ratio (CIR), a key indicator of bank profitability, reveals significant disparities across EU countries. In the middle of 2024, Portugal's banking sector boasted the lowest CIR at 32.2 percent, followed closely by Greece, indicating their superior operational efficiency. In contrast, Liechtenstein, France, and Germany faced challenges with higher CIRs, suggesting room for improvement in their banking operations. Similar differences can also be observed at the individual bank level, where some of the largest European banks reported CIRs well above 70 percent in 2023.

Recent trends in the EU banking sector

The European Union's banking industry has experienced notable fluctuations in recent years, which was reflected in the EU's aggregate cost-to-income ratio. In the first quarter of 2020, the COVID-19 pandemic caused the CIR to spike to 73.29 percent, the highest in recent history. However, the sector has since rebounded, with the CIR stabilizing around 53 percent throughout 2023. This improvement coincides with a significant increase in total operating income, which reached 759.45 billion euros in 2023, up from a low of 561.27 billion euros in 2020.

Profitability and growth outlook

Despite challenges, the EU banking sector has shown resilience and growth. The operating income growth rate reached approximately 16 percent in 2023, the highest in the observed period. This positive trend is particularly noteworthy following the substantial decline in income growth during the 2020 pandemic-induced economic contraction. As banks continue to adapt to changing economic conditions, their ability to maintain low CIRs while increasing operating income will be crucial for sustained profitability and stability in the European financial landscape.