“Banking is very good business if you don’t do anything dumb” – Warren Buffett

Europe

European banks have been in a perplexing predicament since the Great Financial and Sovereign Debt Crisis. Because banking is a unique industry, this paradox presents a problem not only for financial institutions but also for Europe’s economic and political standing. To address this challenge and chart a path to long-term growth, banks will have to reinvent themselves, and policymakers will have to take decisive action.

Although the industry was severely destabilized by the financial and sovereign debt crises, European banks have cleaned up their balance sheets, aided by new international prudential rules implemented in Basel. They're better capitalized, more solvent, and have greater liquidity presently. According to data, European banks' equity increased by 65% between 2008 and 2020.

For large banks, the balance sheet total and quality of the asset is a crucial indicator of how well a bank is doing. The Analyst looks at both the financial position and statement of performance of the top three banks in Europe, BNP Paribas SA, France, HSBC Holding, UK, and Crédit Agricole Group, France ranked the largest bank in the continent.

BNP Paribas

Banque Nationale de Paris (BNP) and Paribas is a French international banking group and a top-tier bank in Europe. The bank became one of the largest banks in the Eurozone following the 2008 financial crisis. It is considered a systematically important bank by the Financial Stability Board. The French bank is listed on the Paris Stock Exchange with a market capitalization of US$73.00bn as of February 2021. BNP Paribas holds key positions in three operating divisions, Commercial, Personal Banking and Services, Investment and Protection Services, and Corporate & Institutional Banking.

The full-year 2021 results show that the Bank recorded a total asset of US$2.37trn which rose by +5.87% from 2020 levels (see table 11 below). In 2021, BNP Paribas had a dividend payout ratio of 60%, 50% in cash, and 10% in share buyback.

Table 11: BNP Paribas Financial Highlights

HSBC Holdings Plc

HSBC Holdings is a British multinational financial services company and the second-largest bank in Europe, present in over 64 countries. the bank is listed both on the Hong Kong Stock Exchange and the London Stock Exchange. It has secondary listings on the New York Stock Exchange and the Bermuda Stock Exchange. As of February, the market cap of the Holdings was US$134.67bn and its total assets at the end of 2021 stood at US$2.96trn.

The financial statement of the result as of 2021 shows significant improvement as the COVID-19 pandemic had a severe impact on the performance of the bank in 2020. Profit before tax rose year-on-year (Y-on-Y) by +112.98% and the return on equity of residual owners of the bank rose Y-on-Y by +208.70% to 7.1% from 2.3% in 2020. The equity side of the capital structure of the company at all levels reduced during the period with tier 1 capital recording the largest decline of -11.36% to US$21.49bn (see table 12 below).

Table 12: HSBC Holdings FY2021: Financial Highlights

Crédit Agricole Group

Sometimes called the Green Bank due to its historical ties to farming, the group consists of 39 regional banks and is listed through Credit Agricole S.A, an intermediate holding company on Euronext Paris. With a market capitalization of US$35.87bn, the bank has about 51 million customers in France and over 11,000 branches worldwide. The bank is considered a systematically important bank by the Financial Stability Board.

Revenues for 2021 were up Y-on-Y by +7.92% while gross operating income rose Y-on-Y +12.26%. The cost of risk and cost-to-income ratio improved in the period by 49.36% and 2.57% respectively (see table 13 below).

Table 13: Crédit Agricole Group FY2021: Financial Highlights

Financial Position

Total Assets

The three top banks in Europe recorded an average growth rate of +3.78% in 2021. BNP Paribus Bank had the largest total asset with the highest percentage growth rate of +6.12%. The bank had a total asset of US$ 3.4trn. HSBC Holding PLC came second with a US$2.95trn as total assets, while Credit Agricole Bank Group ranked as the third-largest bank with US$2.28trn in total asset

BNP Paribus Bank recorded the highest growth rate of +6.12%. the growth was supported by a +12.69% in cash and balances with the central bank, +14.42% increase in Securities, and +5.81% growth in financial investment in insurance activities

The growth in Credit Agricole Bank was a result of +22.39% in cash and cash balance with the central bank, +37.21 increase in current and deferred tax assets, and +8.23% increase in loans and receivables due from credit institutions.

While -36.02% decline in derivatives resulted in to -1.01% decrease in the total assets of HSBC Holding Bank (see chart 12 below).

Chart 12: Total Assets of Top Three Europe Banks 2021 (US$’trn)

Shareholders Fund

With an average growth rate of +3.30% shareholders' fund, HSBC Holding PLC had the largest shareholder fund in the two periods. 2021, the bank shareholders fund grew at a margin of +0.92% to US$198.25bn. BNP Paribus Bank shareholders fund grew by +4.39% to 161.19bn; the growth was supported by a +3.86% rise in retained earnings and net income and a +1.56% increase in minority shareholders' interest.

With the lowest value of US$84.51bn in shareholders fund, Credit Agricole Group reported the highest growth rate of +4.59% (see chart 13 below).

Chart 13: Total Equity of Top Three Europe Banks 2021 (US$’bn).

Customers Deposits

Credit Agricole bank which had the lowest value of US$858bn in customers deposit attained the highest growth of +8.47%, HSBC Holding PLC came second with a percentage growth of +4.13% and a value of US$1.7trn in customers deposit, BNP Paribus appeared third on the percentage growth list stating a growth rate of +1.77% and a value of US$1.26trn in customers deposit (see chart 14 below).

Chart 14: Customers Deposits of Top Three Europe Banks 2021 (US$’bn)

Loans And Advances

BNP Paribus Bank had the highest value of loans and advances in the two-period with the lowest growth rate of +0.55%, HSBC Holding Plc, then came second both in value and the percentage growth of +0.75% resulting in US$1.04trn. Credit Agricole Group recorded the highest growth of +13.30% with the lowest value of US$505.38bn in loans and advances (see chart 15 below).

Chart 15: Loans & Advances of Top Three Europe Banks 2021 (US$’bn)

Downloadable Versions of Tier 1 Banks Report (PDF)

1. Executive Summary: Nigeria’s Banking Industry: The Case for Redefining Tier 1 Banks - May 28, 2022

2. Full Report: Nigeria’s Banking Industry: The Case for Redefining Tier 1 Banks - May 28, 2022