Banks, which thrived in 2024 amid the end of global interest-rate repression, are poised for continued strength in 2026, according to JPMorgan's latest market outlook. The sector's expanded net interest margins and robust capital returns are expected to drive sustained outperformance.
- Average bank net interest margins reached 3.8% in 2024, up 90 basis points from 2021.
- Top 10 U.S. banks reported $62 billion in pre-tax profits in Q4 2024, a 17% YoY increase.
- Total capital returns by U.S. banks amounted to $138 billion in 2024, up 22% from 2023.
- European banks recorded strongest quarterly net income since 2021 in Q3 2024.
- Japanese banks saw a 28% rise in operating profits in fiscal year 2024.
- KBW Bank Index gained 29% in 2024, outperforming the S&P 500 by 13+ percentage points.
The banking sector's momentum from 2024 is projected to extend into 2026, with JPMorgan highlighting a sustained expansion in net interest margins across major financial institutions. Following the normalization of monetary policy in the U.S., Europe, and parts of Asia, average bank net interest margins reached 3.8% in 2024—up nearly 90 basis points from 2021 levels. This shift has directly boosted profitability, with large U.S. commercial banks reporting average pre-tax profits of $62 billion in Q4 2024, a 17% year-over-year increase. The resilience of bank balance sheets, combined with strong loan growth and deposit pricing discipline, has enabled institutions to maintain healthy capital adequacy ratios. As of December 2024, the CET1 ratio for the top 10 U.S. banks stood at 14.2%, well above regulatory minimums. This strength has allowed firms like JPMorgan Chase (JPM), Bank of America (BAC), and Wells Fargo (WFC) to increase dividend payouts and share buybacks, with total capital returns totaling $138 billion in 2024—up 22% from the prior year. Market analysts note that the sector's performance is not limited to U.S. institutions. European banks, including HSBC (HSBC) and Deutsche Bank (DB), recorded their strongest quarterly net income since 2021 during Q3 2024, driven by higher interest income and improved credit quality. In Japan, major lenders such as Mitsubishi UFJ Financial Group (MUFG) and Sumitomo Mitsui Financial Group (SMFG) saw a 28% rise in operating profits in fiscal year 2024. The continued strength in bank stocks is expected to influence broader market dynamics. The KBW Bank Index rose 29% in 2024, outperforming the S&P 500 by over 13 percentage points. JPMorgan's analysts project that earnings growth in the sector will remain above 10% annually through 2026, supported by stable interest rates and moderate loan loss provisions.