UK bankers anticipate that the industry will report a nearly double digit average return on equity (ROE) in 2015 at 9.5% for the first time since 2009, according to EY’s European Banking Barometer 2015.
The increase, attributed to an anticipated 3.75% uplift this year, represent over thrice the rise forecast in mainland Europe (1.09%).
Estimates imply that UK lenders will be able to cover their cost of equity (c9.1%) for the first time in six years if the projected figures are achieved.
EY lead global banking analyst Steven Lewis commented, "Strong revenue figures herald a positive message of a changed industry, which is on a more sustainable footing for future performance. Although achieving an ROE of 9.5% and exceeding the cost of equity depends on the banks delivering on their revenue and cost targets and continued growth in the UK economy, it would be a welcome boost to UK banks that have been struggling to deliver to shareholders.
"Achieving ever greater ROE requires more than just an improving economic environment. It is a balancing act, which has been difficult to get right given increased capital requirements, a higher cost of capital, more liquidity and an increase in the cost of compliance. But, it appears that we are finally getting back on track to achieving sustainable growth."
UK banks have been unable to reach double digit ROE since 2007, when they posted an average ROE of 17.6%.
Notably in 2009, ROE reached 9.4%, but saw a sharp decline to 1.1% in 2013.