Europe has too many banks! ECB boss says eurozone finance industry needs urgent reform
THE boss of the European Central Bank today warned the industry was too overcrowded to be profitable and urged widespread reform.
Mario Draghi said there were too many banks, too many branches and too many staff and rejected claims the ECB’s monetary policy was to blame for hitting earnings across the sector.
Critics claim the ECB’s commitment to lowering interest rates across the eurozone has led to a reduction in banking profits.
And while Mr Draghi said he accepted low, and sometimes negative, interest rates were difficult for banks they were not the only reason for problems in the sector.
He said the huge number of banks and the fierce competition this inevitably generated between them was a major factor behind the weak results.
The excessive number of banks that characterises Europe causes low levels of profitability
He told bankers at a conference in Frankfurt: “Low interest rates tend to compress net interest margins because of downward rigidity in deposit rates.
“But the excessive number of banks that characterises Europe causes low levels of profitability.
"The overcapacity in some national sectors involves an intense competition and implies that the sector does not operate efficiently.
"Some banks will have to change their business models to sustain profitability.”
According to ECB statistics, there are 37 bank branches for every 100,000 people living in the EU.
The worst cases of ‘overbanking’ are in the Mediterranean region with Spain boasting 66.9 branches per 100,000 inhabitants and France 56.
Italy, where Prime Minister Matteo Renzi has repeatedly urged downsizing to help tackle his country’s serious banking crisis, has 50 branches per 100,000 people - or 650 banks with 30,723 branches.
Even Germany has more than 41 branches for every 100,000 inhabitants which equates to 1,768 banks with 35,284 branches.
According to the last ECB bulletin: “These countries are particularly vulnerable to an increased instability in financial markets or a rise in interest rates."