Many European banks are struggling to lift profitability after years focused on slimming balance-sheets and raising capital in the face of tougher regulations following the 2007-2008 financial crisis.

"One way for banks to raise profits without shirking on investment is through genuine efficiency gains," ECB Executive Board Member Yves Mersch told a banking conference in Paris.

"And in this context I see a large 'low hanging fruit' in Europe that is ripe to be picked -- consolidation within the sector," he said, adding there were too many banks given the size of the market.

Even though most banks came under ECB supervision last November under the euro zone's banking union, many maintain close political links in their home countries, which discouraged consolidation, Mersch said.

He said banks were also reluctant to be the first to step forward in any merger wave that might be released by the construction of a euro zone banking union.

Speaking at the same conference, Commerzbank's (>> Commerzbank AG) chief risk officer Stefan Schmittmann ruled out merger deals as long as banks faced an ever longer list of regulations.

"I doubt whether at the moment a bank is in a position to integrate another bank and still comply with all of the regulatory requirements," Schmittmann said.

"This seems to me basically impossible for us ... and so I do not see this consolidation," he added.

While some regulators are edgy about risks getting too concentrated when banks get big, the ECB is eager to see the emergence of cross-border banks in Europe to help reduce wide divergences between the cost of credit among euro zone countries.

BNP Paribas's (>> BNP PARIBAS) chief operating officer Philippe Bordenave said European banks had fallen behind U.S. rivals in terms of consolidation largely because regulators were uncomfortable with huge banks.

"Banking union is poised to favour consolidation but in practice currently regulators don't like big banks. So I think this will hamper the process," Bordenave said.

Credit Suisse's UK chief executive Garret Curran said many banks were still slimming down their balance-sheets and had little appetite for mergers.

"I think the trend is more towards deconsolidation not necessarily (as much) by selling things as (by) closing them," he said.

(Reporting by Leigh Thomas; Editing by Andrew Callus and Mark Potter)

Stocks treated in this article : BNP PARIBAS, Credit Suisse Group AG, Commerzbank AG