Global
Banking
Outlook
Five structural forces are converging to reshape global banking — rate normalisation, geopolitical fragmentation, AI transformation, regulatory tightening, and the rise of non-bank financial intermediaries.
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Macro Environment
After the most aggressive rate hiking cycle in four decades, central banks are pivoting — reshaping the profitability calculus for every banking system globally.
The 2022–2024 rate cycle was a rare golden era for bank NIM — the fastest rate rise in 40 years created an unprecedented tailwind for asset-sensitive institutions. Global bank ROE reached post-GFC highs, with US banks averaging 11–17% ROE in 2024–2025.
The pivot to rate cuts beginning in late 2024 introduces a new phase: NIM normalisation. Banks must now grow fee income, cut costs through technology investment, and manage credit quality deterioration — particularly in commercial real estate — to sustain earnings through the cycle turn.
Can banks maintain ROE above cost of equity (10–12%) as NIM compresses? Fee income diversification, cost efficiency through AI, and capital return discipline will determine the answer at an individual institution level.
Regional Outlook
Each major banking system faces a distinct set of opportunities and structural challenges in 2026.
Regional Banking Snapshot — 2026
EF Research| Region | Avg ROE | NIM | Key Risk | Outlook |
|---|---|---|---|---|
| United States | 12–15% | 3.2–3.6% | CRE credit losses | Cautious positive |
| Eurozone | 9–11% | 1.5–2.2% | Rate cut NIM compression | Neutral |
| United Kingdom | 10–13% | 2.0–2.8% | Mortgage book repricing | Neutral positive |
| Japan | 6–9% | 0.8–1.2% | BoJ rate normalisation pace | Improving |
| China | 9–11% | 1.8–2.2% | Property sector NPL overhang | Cautious |
| India | 14–17% | 3.2–3.8% | Loan growth sustainability | Positive |
| Southeast Asia | 12–15% | 3.5–4.5% | FX and geopolitical risk | Positive |
Technology Transformation
AI, cloud, and real-time payments infrastructure are restructuring banking economics — creating a structural cost gap between technology leaders and legacy laggards that widens every year.
Regulatory Landscape
Basel IV, climate stress testing, AI governance, and stablecoin regulation are converging to increase the regulatory burden — and the compliance cost — of banking in 2025–2027.
- → Basel IV (FRTB) — Final implementation adding 10–15% to RWA for most banks — requiring balance sheet optimisation or capital raises.
- → Stablecoin Frameworks — US, EU, and UK regulatory frameworks creating a licensed pathway for bank-issued stablecoins and strict reserve requirements for private issuers.
- → AI Model Governance — SR 11-7 equivalent guidance on AI — requiring model validation, explainability, and bias testing for AI-driven credit and pricing decisions.
- → Climate Disclosure — SEC climate rule (US) and CSRD (EU) mandating detailed Scope 1/2/3 emissions reporting and climate scenario analysis for financial institutions.
- → Open Finance — Extension of open banking data-sharing obligations to investment, insurance, and pension data — expanding PSD2-style frameworks into broader financial services.
Regulatory Timeline 2025–2027
Scenario Analysis 2026
Three macro scenarios shape the range of outcomes for global banking profitability through the end of 2026.
Global growth 2.5–3.0%, inflation contained, gradual Fed cuts. Banks absorb NIM compression via fee income growth and CIR improvement. ROE moderates to 10–12% but stays above cost of equity. CRE losses manageable.
Inflation re-accelerates — cuts reversed. Short-term NIM support but credit quality deteriorates faster. Consumer and SME stress amplifies. Provisioning charges weigh on earnings. ROE 8–11%.
Growth recession in US or EU. CRE NPLs surge, consumer credit deteriorates, credit card losses spike. Provisioning charges overwhelm NIM benefit from any rate cuts. ROE dips to 6–9% for 1–2 years.
We assign 50% probability to a soft landing — with global bank ROE settling in the 10–12% range by 2026 year-end as NIM normalises. Banks with strong fee income streams, AI-driven cost advantages, and clean credit books will sustain returns comfortably above sector average.
- → Winners in the base case — US diversified banks, SE Asian retail banks, digital-native challengers with sub-45% CIR.
- → Laggards in the base case — US regionals with heavy CRE, European banks with thin NIM and low fee income, banks with poor digital investment track records.
- → Wildcard upside — AI-driven cost savings exceed expectations — CIR drops faster than anticipated, supporting ROE above 13% for early movers.
- → Wildcard downside — CRE losses larger than consensus — a cluster of US regional bank failures triggers contagion and tighter credit conditions.