Italian banks are among the most profitable in Europe and the outlook is favourable, even if we anticipate lower profits in coming quarters. M&A may reshape the sector, though execution risks are rising.

Operating environment assessments, the starting point for the analytical process, reflect regulatory and supervisory convergence. Ratings are determined by economic, sector and bank-specific factors. Despite uncertainties, the picture is resilient.

Wednesday, 28 May, 3 pm CEST

The robust solvency of European banks and their capacity to absorb credit losses from ordinary profitability provide important buffers against credit deterioration at a time when US trade policy is impacting Europe’s growth and interest-rate outlook.

European households will see housing affordability deteriorate as the supply-demand gap persists and prices continue to rise. Stimulus measures are urgently needed to boost housing supply in European countries where the situation is particularly acute.

The sharp correction in European banks’ share prices following the announcement of US tariffs on EU imports reflects mounting investor concerns about the potential implications for asset quality and profitability in a traditionally high-beta sector.

French banks’ profits will grow moderately in 2025, supported by net interest income and commissions, notably in corporate and investment banking. But improvements in profitability could be slowed by the subdued performance of the domestic economy.

We expect a modest deterioration in EU banks’ asset quality, mainly driven by rising pressures in the EU corporate sector. But a worsening of the global operating environment could accelerate this deterioration, increasing credit risks for the banks.

While Spanish banks achieved record profitability in 2024, Q4 results suggest that net interest margins and customer spreads have peaked. Increasing fees and commissions will be key to profitability, given lower rates and competitive pressure on lending.

The financial landscape is undergoing momentous change. European banks must navigate these shifts carefully to maximise profitability while mitigating risks.