Key Takeaways
- European bank profits rose sharply in Q2 2026, with net profit up around 18% year on year across our sample.
- Revenue growth outpaced costs, improving the average cost-income ratio to 47.8%.
- Asset quality and capitalization remained resilient, supporting our favorable credit outlook.
The Q2 2026 earnings season for most major European banks concluded last week. We reviewed a sample of 17 large and medium-sized banking groups across the European Union and the United Kingdom (see appendix). The selection of banks was designed to provide broad coverage across major European banking markets and business models, including domestic retail banks, diversified universal banks, investment-banking-oriented groups and wealth-management franchises.
Overall, the second quarter delivered another strong set of results across the sector. On average, aggregate quarterly net profit across our sample increased by approximately 18% year over year. Profitability remained strong, in several cases reaching record levels, supported by good commercial momentum, resilient net interest income (NII), stronger fee generation, and contained credit costs despite the uncertain macro and geopolitical environment. The strong results also led some banks to revise their financial targets upward.
In our view, Q2 2026 results support our favorable credit outlook for European banks for the remainder of 2026. Banks continue to benefit from improved earnings diversification, cost discipline, sound asset quality and robust capitalization. While geopolitical developments remain among the main downside risks, current trends suggest that most banks are well positioned to meet or exceed their 2026 objectives, or to withstand a more challenging operating environment if conditions deteriorate.
Strong Revenue Momentum, Positive Operating Jaws, and Continued Investments in Digitalization
Q2 2026 earnings benefited from a combination of resilient NII, stronger fee income and robust capital markets activity. While declining asset yields continued to put some pressure on margins in certain markets, many banks offset this through loan growth, favorable deposit dynamics, lower funding costs and contributions from structural hedging programs. The ECB’s June 2026 rate increase, the first since 2023, should provide additional support to NII over the coming quarters in some markets.
Fee income was another important contributor to revenue growth. Several banks benefited from stronger momentum in client activity across wealth management, insurance and payments. In addition, banks with sizable investment banking franchises, such as Deutsche Bank DBK, UBS UBS, and BNP Paribas BNP, reported stronger capital markets revenues, driven by heightened market volatility, which led to strong client activity and boosted trading revenues.
Revenue growth generally exceeded cost growth, resulting in positive operating jaws and further efficiency improvements. Specifically, across our sample, total revenues increased by approximately 9% year over year in Q2 2026, on average, while operating expenses rose by around 5%, mainly reflecting wage inflation and investments. As a result, the average cost-income ratio improved to 47.8%, compared with 50.3% in Q2 2025.
Banks continued to invest in programs aimed at improving operating efficiency, scalability, customer engagement and risk controls. These initiatives include investments in AI, cloud and data infrastructure, automation, digital platforms and legacy-system simplification. Examples include BBVA’s BVA creation of a dedicated AI Transformation unit, Bank of Ireland’s appointment of a Chief AI Officer and Rabobank’s plan to invest up to EUR 2 billion over the next three years in data and IT capabilities. We view these investments as supportive of banks’ long-term efficiency and franchise competitiveness.
The strong first-half performance also led several banks to upgrade financial targets or guidance. ING INGA increased its 2026 and 2027 income and profitability targets, Intesa Sanpaolo ISP raised its 2026 net income guidance to above EUR 10 billion, BBVA increased its 2026 ROTE target, and Société Générale GLE increased its 2026 return on tangible equity (ROTE) target and cost-reduction objective.
Asset Quality Remains Resilient While Strong Capital Buffers Provide Flexibility to Support Growth and Shareholder Returns
Asset quality remained robust in Q2 2026 despite elevated geopolitical tensions. Most banks reported stable or improving credit metrics, limited inflows of new nonperforming loans (NPLs) and contained costs of risk. Looking ahead, we remain moderately cautious on future asset quality trends given ongoing geopolitical uncertainty and renewed upward pressure on energy prices and inflation.
Across our sample, the aggregate stock of NPLs increased by approximately 4% year over year to around EUR 190 billion. However, the average gross NPL ratio declined by approximately 20 basis points to 1.9%, largely reflecting loan growth. Moreover, we don’t have evidence of aggressive underwriting or material weakening in credit standards in our coverage universe.
Nevertheless, pockets of risk remain in specific sectors or legacy exposures, including UK motor finance, Polish Swiss franc mortgage portfolios, commercial real estate and selected single-name corporate exposures. At present, these risks are manageable relative to banks’ earnings generation capacity, provisioning levels and capital buffers.
Capitalization also remained robust despite shareholders’ distribution. The average common equity Tier 1 (CET1) ratio across our sample stood at approximately 14.9%, broadly unchanged from Q2 2025 and compared with Q4 2025. Strong internal capital generation, capital optimization initiatives and disciplined balance sheet management continued to offset the impact of generous shareholder distributions and business growth.
Several banks, including Deutsche Bank, Barclays BARC and Société Générale, announced additional shareholder distributions, primarily through share buyback programs. In our view, these announcements signal management confidence in the sustainability of earnings and capital generation despite the uncertain geopolitical backdrop. At the same time, banks remain on the lookout for attractive acquisition targets as they continue to explore growth opportunities.
