European Banks: 2026 Outlook
Simon Adamson - Head of Financials, 糖心视频
Paola Biraschi - Head of Southern European Banks, 糖心视频
Puja Karia - Head of Western European Banks, 糖心视频
Jennifer Ray - Head of Northern European Banks, 糖心视频
Feargus Haston - Analyst, Banks, 糖心视频
16 December 2025
Insights into European Banks: 2026 Outlook, including:
- AT1 bonds maintain outperform recommendation:聽Meanwhile, higher carry and low extension risk support compelling excess return potential versus other tiers.
- Fundamentals remain strong despite modest weakening expected:聽However, profitability, asset quality, and capital ratios stay stable amid economic uncertainties and geopolitical tensions.
- Basel 4, depositor preference, Swiss reforms shape regulatory landscape:聽Additionally, implementation timelines and capital requirement changes influence banks’ strategic positioning through 2026.
- Private credit exposure and SRTs emerge as monitoring priorities:聽Therefore, transparency concerns and interconnection risks warrant increased scrutiny across European banking sector participants.
- Tight spreads offer limited upside amid stable supply:聽Consequently, modest widening anticipated despite strong investor demand and refinancing-focused issuance patterns throughout year.
Executive Summary
European bank fundamentals remain strong despite some operating environment weaknesses and uncertainties. However, modest weakening in capital ratios, asset quality, and interest margins is expected in 2026.
Regional differences have diminished significantly with credit metrics now within narrow ranges across Europe. Credit rating differentials between countries have similarly become quite small.
Most post-GFC regulatory changes have been implemented though some reforms remain pending. Additionally, Basel 4, EU depositor preference, and Swiss TBTF regime reforms are still on agenda.
Hot topics for 2026 include French political instability and banks’ private credit exposure. Risks associated with synthetic securitisations will require continued monitoring throughout the year.
Supply levels should remain similar to 2025 though AT1 issuance will decrease significantly. Credit spreads remain tight with limited upside, suggesting modest widening is most likely.
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