Return on equity of banks in Europe Q1 2023, by country

The banking sector in Cyprus had the highest return on equity in Europe with 26.7 percent as of March 2023. Cyprus was followed by Latvia and Lithuania. Return on equity is an important measure of a bank or country’s banking sectors profitability. ROE is calculated by taking the amount of net income returned as a percentage of the shareholders equity. Return on Equity looks at how well a bank’s (or company’s) management is using its assets to create profits.

Return on assets

Return on assets looks at how well a company's management is in generating earnings from their assets and is used as a key measure of a bank's profitability. Low profitability has been highlighted several times by the ECB as a key risk to the financial stability of the Euro area. Prolonged low profitability can have a knock-on effect to an economy’s growth. On the other hand, sustained periods of higher than average profitability can also mean trouble as seen in the period running up to the financial crisis. The European Banking Authority (EBA) requires banks to report on key measures to determine and illuminate any potential risks.

Cost to income ratio

The cost to income ratio (C/I ratio) is an important financial metric in determining the profitability of banks. The measure looks at the cost of running operations as to a bank’s operating income. Lower ratios mean that a bank is running more profitably whereas a higher C/I ratio indicate that the bank’s operating expenses are too high.