European finance sector 'will see limitations during 2012'

The European financial services sector is likely to see a continuation of constrained funding over the next 12 months, according to new analysis from Ernst & Young.

Figures from the global accountancy firm have suggested recent actions from the European Central Bank are unlikely to dispel lingering economic concerns, with factors such as the financial transactions tax set to have an impact.

Issues for banks include the need to compete for retail deposits and investments, which will lead to erosion of profit margins, while reductions in lending could also hamper growth efforts.

Andy Baldwin, head of financial services for Europe, Middle East, India and Africa at Ernst & Young, said: "Shareholder pressure to scale back investment in selected wholesale and trading areas, coupled with increased regulation of derivatives trading and clearing houses, will increase funding costs across the sector."

Earlier this month, the Centre for Economics and Business Research predicted the eurozone will begin to break up in 2012 as a result of economic pressures.