European Bank Profit Hurt by Loan Provisions, E&Y Says

Euro-region banks’ profit growth may be hampered by provisions for bad loans as the European Central Bank leads a review of lenders’ asset quality, Ernst & Young LLP said in a report.

Total bank operating income is expected to rise 7.1 percent in 2014, after increasing 1 percent this year, led by lenders in Italy, Germany and France, according to the report, published today. That’s less than the 7.6 percent 2014 growth and the 2 percent 2013 increase estimated by Ernst & Young in July.

While banks will benefit from a decrease in non-performing loans, which are expected to peak at 7.8 percent of total loans this year, the ECB review will probably bring tougher provisioning standards, Ernst & Young said. ECB President Mario Draghi said last week the asset-quality review must be transparent and rigorous as the central bank prepares to take over supervision of all euro-area lenders next year.

Ernst & Young forecasts total lending will grow 3.2 percent in 2014, while deposits will increase 3.6 percent, helping to boost bank profitability.

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