Recently, the large European banks have been outperforming U.S. and Canadian banks at improving their profitability, narrowing the gap in returns between the regions — however, that gap is expected to stabilize in the months ahead, says Fitch Ratings.
In a new report, the rating agency said that average return on equity (ROE) for the big European banks has been steadily improving, rising to 11.9% for fiscal 2025 from 8.9% in fiscal 2022 — outpacing the North American banks, which saw average ROE rise to 12.8% from 12.2% over the same period.
The big European banks have been particularly good at containing the growth of costs, which has enabled them to grow ROE faster than their North American rivals, Fitch said.
On the revenue side, banks in most developed markets benefited from higher interest rates between 2022 and 2025, which boosted net interest margins (NIMs), it noted.
And again, the European banks’ margins outperformed, with average NIMs rising by 20 basis points over the period, compared with 10 bps for the North American banks.
Looking ahead though, the gap between regional ROEs is expected to stabilize, Fitch said.
While banks will again benefit from higher interest rates due to the impact of the ongoing conflict in the Middle East on global oil markets, this boost “will be counterbalanced by persistent inflation and subdued growth, which will weigh on borrower affordability and banks’ credit quality,” the report said.
The U.S. banks’ performance may benefit from the ongoing AI investment boom in the U.S., which is outpacing Europe, it noted. And, banks in the U.S. may also get a boost from deregulation and reduced capital demands, it added.
Against that backdrop, the rating outlook for the U.S. and Canadian banking sectors is “neutral,” Fitch noted — whereas, it has “deteriorating” outlooks for the banking sectors of France, Germany and the U.K. due to elevated elevated economic uncertainty.