More than a quarter of European banks measured in an annual health report were at high risk last year, according to consultancy Bain & Company.
The review, which covers 111 banks, scores lenders based on profitability, asset and liability health and stability of the operating environment, and then places them in one of four categories: winners, weaker business model, weaker balance sheet or highest concern.
Of the total base, 28 per cent of banks, or 31, flashed a high-risk signal for Bain, up from 26 per cent in 2013. Banks in Italy, Greece, Portugal and Spain formed the bulk of this group and have become "a breed apart in continued distress", Joao Soares, partner at Bain and author of the report, said.
Soares said: "Every single bank that has failed in the past decade and for which there are financial statements available...fell into this quadrant before their demise."
"Executives at many of these banks either lacked an integrated view or were in denial about the warning signs," Soares added.
Meanwhile, 38 per cent of banks attained the strongest position. Scandinavian, Belgian and Dutch banks figured prominently on the list, outperforming on virtually all financial indicators.
"A select group of banks that are performing well on a range of indicators have been increasing their lead over persistent laggards—particularly in the multiple accorded by equity investors," Soares said. "Indeed, the listed winners have more than a four times price-to-book ratio advantage over those banks at greatest risk of failure or bailout."
Soares added that the past decade has shown that any bank at any point along the spectrum can return to good health through a proven formula.
"That is, if the regulators, board and senior executive team have the commitment to carry out the hard decisions required over three to five years," he said.