Amid declining net interest margins, big European banks will likely see earnings slip this year, Fitch Ratings says.
In a new report, the rating agency said the 20 largest banks in the region performed well in the first half of 2025.
“Revenue generation was resilient to declining interest rates, and cost and asset quality pressures were generally contained,” it said.
However, Fitch expects full-year profits to erode compared with 2024.
“The main driver of this [earnings decline] will be smaller net interest margins, partially offset by growing lending volumes and strong trading income,” the agency said.
Margins have already started to tighten and are “likely to fall further through the rest of 2025,” mainly due to narrower deposit spreads, Fitch said.
At the same time, lending activity is expected to accelerate as interest rates decline and trade turmoil eases.
“We expect loan impairment charges to increase, but to stay within banks’ guidance, reflecting moderate pressures and continued geopolitical uncertainty,” it said.
The banks’ capital markets businesses are also expected to hold up amid elevated market volatility.
“Trading income is likely to remain robust in coming quarters and will partially offset lower net interest income, following a trading revenue surge at most universal banks — with client activity reaching multi-year highs,” Fitch said.