The year 2023 marked the return of traditional banking, as noted in Bearingpoint’s 2024 Banking study. However, banks across Europe benefited differently from improved interest income.

While European banks continued to improve their cost efficiency last year, the acquisition of Credit Suisse (CS) by UBS had a significant impact on results in Switzerland. The study notes a decline in cost efficiency in the Swiss banking sector.

Best Cost-Income Ratios in Nordic Countries

Across Europe, the cost-income ratio (CIR) averaged 55.1 percent, the lowest level since 2013. Nordic countries achieved the highest efficiency with a CIR of 39.9 percent, followed by Spain and Portugal at 42.5 percent. In Switzerland, the CIR, adjusted for one-time effects, was significantly higher at 60.9 percent.

This is partly attributed to Switzerland’s business model, which is more focused on asset and wealth management compared to other European banks.

Interest Income and Pre-Tax Profits

The return to traditional banking is reflected in the substantial increase in interest income for European banks, which rose by 82.4 percent. Average pre-tax profits rose by 38.9 percent. In Switzerland, pre-tax profits increased by only 7.5 percent in 2023, excluding the special effects from the Credit Suisse acquisition.

Germany achieved a top growth rate in interest income, up by 119.1 percent. However, with a low interest margin of just 0.91 percent, it ranks in the lower third of European countries. Switzerland and France, on the other hand, have seen a decrease in interest margins.

«In Switzerland, the fee-heavy asset and wealth management business, combined with relatively modest interest rate hikes has resulted in slower growth in interest income. Switzerland remains a leader in fee income, although the fee margin declined in 2023,», the authors write.

IT Investments Pay Off

The cost side was also examined. Recent transformation efforts in digitalization and automation have increased IT costs by 4.9 percent. It was noted that banks operating most efficiently (performers) – with a CIR of 55 percent or better – invest twice as much in their IT infrastructure as banks with higher CIR (laggards).

Past experience has shown that high investment in IT infrastructure pays off. «Digital pioneers operate more efficiently overall, are more flexible with respect to their administrative costs, and can adapt better to short-term changes,» says Robert Bosch, Head of Banking & Capital Markets at Bearingpoint.

The study is based on an analysis of the financial statements of 118 European banks over the past five years.