European banks are expected to continue to grow through 2026. Investors remain optimistic, supported by strong profits, improved efficiency and, above all, significant cost savings coming from the use of artificial intelligence (AI).
Expectations of interest rate cuts by the European Central Bank (ECB) have significantly improved perceptions of the banking sector. Although the environment remains challenging, investors have revised their expectations for European banks.
Banks are increasingly using AI to increase operational efficiency, improve fraud detection and reduce personnel costs, Reuters reported.
"European banks could be real beneficiaries of artificial intelligence," said Helen Jewell, chief investment officer for fundamental equities at BlackRock.
According to her, while attention has often focused on companies that increase revenues thanks to AI, an important part of the story is related to those who benefit from reduced costs.
Banks are expected to return 20–25% of market value to shareholders over the next three years, through dividends and share buybacks.
Merger and acquisition activity is also being seen as an additional boost, with major transactions such as the takeover of Mediobanca by Monte dei Paschi di Siena transforming the Italian banking landscape.
"If you combine valuations, shareholder rewards and Europe's economic stability, the banking sector remains quite attractive," Jewell continued.
Even if interest rates fall further, this stability is expected to support European banks in the coming years.