Profitability is not a goal in itself, but a means towards an end – and this end is the stability of a bank and its capacity to meet regulatory capital requirements. That’s why supervisors are concerned about falling profitability. Efficiency, in turn, is a means towards the end of profitability – where increased cost efficiency improves the return.
To be in really good shape for the challenges that lie ahead, banks in the euro area must work on their operational efficiency and need to adapt their income sources. This is true for many, if not most, financial institutions. So, the condition of the banking sector is healthy in general, but it clearly could be better.