Deutsche Bank is least efficient large European bank in Q2 2023

Deutsche Bank AG ranked as the least cost-efficient among major European banks in the second quarter after higher costs dented the German bank's results for the period.

Germany's biggest lender by assets recorded a cost-to-income ratio — a measure of banks' efficiency — of 75.62% at June-end, up 4.57 percentage points from three months earlier, S&P Global Market Intelligence data shows.

The bank booked a 27% year-over-year decline in second-quarter profit on the back of higher costs. Its nonoperating expenses surged more than fivefold to €655 million due to hefty litigation charges and restructuring costs related to job cuts and mortgage platform optimizations, while noninterest expenses rose 15% to €5.6 billion.

For the full year, Deutsche Bank expects group noninterest expenses to exceed the €20.4 billion recorded in 2022, in part due to an impact relating to the acquisition of UK brokerage firm Numis Corp. PLC, which is expected to close in late 2023.

French banking groups Société Générale SA and Groupe BPCE recorded the second- and third-highest cost-to-income ratios of 70.64% and 69.49%, respectively, in the April-June period. While their second-quarter operating expenses have been largely contained — up by roughly 3% year over year for both banks — revenues were lower. Net banking income at SocGen was down nearly 9%, while Groupe BPCE recorded a similar level of decline.

Domestic peer BNP Paribas SA, the largest bank in the eurozone by assets, had a cost-to-income ratio of 60.63%. Its operating expenses ticked up 1.6% while revenues dipped 1.5%.

Banks in France are facing an array of net interest income headwinds, in contrast to many other European peers reaping higher profits from rising interest rates.

However, the French banks' ratios improved from three months earlier, dropping by nearly 16 percentage points for BNP Paribas and by 9.39 percentage points and 5.17 percentage points for Groupe BPCE and SocGen, respectively.

Elsewhere in Europe, UK-based Barclays PLC and Austria's Raiffeisen Bank International AG registered weaker efficiency ratios over the three-month period, rising by more than 6 percentage points, while that of Nordic peer Danske Bank A/S was up by nearly 5 percentage points.

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Of the 32 banks in the sample, 20 recorded improved efficiency ratios during the quarter.

Türkiye Cumhuriyeti Ziraat Bankasi AS recorded the highest quarterly decline of 94.07 percentage points in its ratio to 32.09%, making it the most cost-efficient bank in the ranking.

Belgium-based KBC Group NV registered the second-sharpest drop of 23.38 percentage points, while Dutch peer ABN Amro Bank NV and France's Crédit Agricole Group logged improvements of 14.49 percentage points and 11.45 percentage points, respectively.

On a country-by-country basis, banks headquartered in Denmark, Belgium and Finland recorded higher average cost-to-income ratios in 2022 than in 2021.

UBS Group AG, which is set to publish its second-quarter financial results Aug. 31, was excluded from the sample.