Chart of the Week
Amid macroeconomic uncertainty, European banks’ earnings prospects through to 2027 look healthy according to recent data from Bank of America. In 2025, analysts expect earnings to dip slightly compared with 2024. In 2026 and 2027, banks are expected to report earnings growth.
OUR ANALYSIS
The banking sector is enjoying several tailwinds, including the fact that Trump tariffs do not directly affect it. That said, institutions can be exposed to economic strain through their lending portfolios.
The most significant tailwind for banks is the steepening of the yield curve, as when long-term rates are markedly higher than short-term rates, the banking transformation process is getting more profitable. Bank of America analysts see the ECB deposit rate sitting at around 1.75% at the end of the current cycle (late 2025 or early 2026) with limited negative impact on banks.
While lower short-term Rates compared with 2023 and 2024 reduce revenues, this should be offset by the increase in loan and deposit volumes, higher fees income and revenues generated by the ALCO portfolios, comprised of bonds and interest rate swaps.
In addition, with the non-performing loan ratio at all-time lows since 2019, banks are still enjoying a low cost of risk.
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Written on 18 April 2025. Opinions subject to change.
See also: Decline in Oil Prices: A Support for Europe
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