European banks are attracting investors' interest

Investors have regained some confidence in European bank titles over the past twelve months. Just over a year ago the situation looked a bit different. The shares of individual large banks fell, and the broad market also began to waver.

Banks are preparing themselves for "Basel III"

Many investors have noticed that the solvency of banks has improved for the recent years. The core capital quota, which is important in terms of regulation, has improved on average from 12 percent in the previous year to about 13 percent. On the other hand, the banking sector still struggles. There are still many non-performing loans in the bank accounts. According to the European Banking Supervisory Authority (EBA), the proportion of non-performing loans exceeds the 10 percent mark in one third of all European banks. In its recent supervisory report, the European Central Bank has concluded that credit risks represent the greatest threat to European banks.

Moreover, the banks' inadequate profitability is a source of concern for investors. The return on equity has reached a low of about 3 percent at the beginning of the year. In the middle of the last year this figure was still around 5 percent and in mid-2015 it was over 6 percent.

Operational risks are increasing

According to the European Banking Supervisory Authority (EBA), the operational risks of the institutes also increase. Process and reputation risks from ongoing processes as well as IT risks are named as particularly threatening. Investors who see a favorable entry here should pay attention to the still existing risks of European banks and take into account their investment decisions.

However, since a share’s performance depends on corporate-, industry- and economic-related conditions, investors should always consider the risk of their investments. Developments could turn out differently than expected by investors.

Vontobel products are tradable at your bank or online broker.

This information does not constitute a financial analysis, but product advertisement. Thus it does not meet the legal requirements to ensure the impartiality of financial analysis and is not subject to trade prohibition before the publication of a financial analysis.

For detailed information, particularly regarding the structure and the risks associated with an investment in the derivative financial instruments, prospective investors should read the Base Prospectus, which is available together with the Final Terms and any supplement to the Base Prospectus in electronic form on the issuer’s website: http://certificates.vontobel.com. Additionally, the Base Prospectus, any supplements to the Base Prospectus and the Final Terms are available in printed form, free of charge, at the registered office of the issuer: Vontobel Financial Products GmbH, Bockenheimer Landstrasse 24, 60323 Frankfurt am Main, Germany.

Investors should consider the applicable selling restrictions.

Companies of the Vontobel group may directly or indirectly pay commissions in varying amounts to third parties (e.g. brokers) in connection with the public offer and the distribution of the derivative financial instruments. Further information is available upon request from your distribution partner.

Without permission, this product advertisement may not be reproduced or redistributed.