European banks are expected to report stronger second-quarter earnings this week, underpinned by higher lending activity, resilient interest rates and robust trading revenues, following upbeat results from major US banks.
Analysts expect the region’s lenders to deliver another quarter of solid profitability, although year-on-year earnings growth is likely to moderate. Investors will also be watching for signs that geopolitical tensions, including the Iran conflict, have clouded Europe’s economic outlook.
Goldman Sachs forecasts an 11% year-on-year rise in second-quarter pre-tax profit for European banks, driven by stronger loan growth, resilient lending margins, higher non-interest income and continued cost discipline.
The investment bank said the sector continues to benefit from a favourable operating environment, supported by volume-driven revenue growth, improving operational efficiency through artificial intelligence and stable asset quality.
Italy’s UniCredit and Spain’s Santander are scheduled to kick off the earnings season on Wednesday, while France’s BNP Paribas will report on Thursday. Britain’s Barclays, Germany’s Deutsche Bank, Switzerland’s UBS and Spain’s BBVA are expected to release their quarterly results next week.
European banks have now recorded more than two years of rising profitability, supported by stronger lending margins and contained credit losses. The sustained performance has propelled banking stocks higher, with the EURO STOXX Banks Index climbing to its highest level since the 2007–2008 global financial crisis.
The sector’s recovery marks a sharp turnaround after years of subdued performance, during which larger US rivals expanded their market share. European policymakers are also seeking to strengthen the industry by removing barriers to cross-border banking mergers and reducing political interference in consolidation efforts.
Despite the positive outlook, analysts remain cautious over the potential impact of rising bad loans and sluggish economic growth across parts of Europe, which could weigh on future earnings.
Meanwhile, market volatility triggered by the Iran conflict has boosted trading activity, while a resurgence in mergers and acquisitions and initial public offerings has lifted investment banking revenues.
Even so, major US banks continue to outperform many of their European counterparts, benefiting from larger domestic markets and stronger investment banking franchises.
Morgan Stanley expects UBS to post robust investment banking revenue growth, while gains at BNP Paribas and Société Générale are projected to be more modest. The brokerage also identified Deutsche Bank as its preferred European banking stock based on its valuation, while maintaining a cautious stance on UBS amid uncertainty over proposed Swiss banking regulations.
Analysts will also scrutinise the performance of French banks’ trading businesses after weaker than expected results earlier this year. Attention will also turn to Iberian lenders, where resilient net interest income and stronger loan growth are expected to reinforce confidence that the earnings reset from lower interest rates has largely run its course, shifting focus to the pace of recovery.
Goodness Anunobi
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