UBS reiterated its ‘overweight’ stance on European banks after a strong second-quarter earnings season prompted fresh upgrades to profit forecasts across the sector.
The 40 major lenders UBS tracks reported pre-tax profit around 6% above consensus, helped by better net interest income, stronger fee income and stable costs.
The beat was broad, with 38 of the 40 banks topping expectations on pre-provision profit and 36 exceeding forecasts on pre-tax profit.
Credit quality held up, with impairments coming in around 6% below consensus and the proportion of loans in default steady at 1.9%.
UBS lifted its earnings per share forecasts by about 2% for this year and 1% for 2027, and now expects sector earnings to grow 12% in 2026, 15% in 2027 and 10% in 2028.
The bank said the sector trades on around 10 times 2027 earnings and 9 times 2028 earnings, with a dividend yield of 4% to 5%, valuations it views as undemanding given the improved outlook.
UBS argued the sector deserves a higher rating, pointing to a doubling in run-rate returns on tangible equity and a clearer interest rate picture than through most of the post-financial-crisis period.
Its top picks include the London-listed lender Barclays, alongside ABN Amro, BNP Paribas, ING, National Bank of Greece, Santander and Société Générale.
Among the largest forecast upgrades were Raiffeisen, Piraeus, Unicaja and BBVA, while Barclays was flagged as carrying further upside risk to 2027 estimates.
