European bank stocks extend rally in Q3, surpassing US, Asia rivals

European banks extended their stock rally in the third quarter, surging ahead of US and Asian counterparts.

The S&P Europe BMI Banks index outperformed US and APAC bank indexes, rising 14.71% in the three-month period. The index has risen 73.89% year to date, versus a 25.48% increase for the US S&P 500 Bank index and a 22.25% rise for the S&P Pan Asia BMI Banks index, S&P Global Market Intelligence data shows.

European banking stocks have been propelled by buoyant quarterly profits, supported by strong noninterest income that helped offset the impact of declining interest rates on lending income. Banks also benefited from a surge in trading income amid heightened market volatility.

Improved profitability and robust capital buffers position mean European banks are well placed to absorb potentially higher credit losses due to rising trade tensions, according to the European Banking Authority's latest EU-wide bank stress test. This could lead to higher dividends and buybacks by the region's banks.

Bank M&A activity in Europe also continues to gather steam. Recent transactions include Banca Monte dei Paschi di Siena SpA gaining control of Italian peer Mediobanca Banca di Credito Finanziario SpA and Spanish group Banco Santander SA's £2.65 billion deal to acquire UK-based TSB Banking Group PLC from Banco de Sabadell SA.

Spain's four largest banks were also among the best-performing European banking stocks during the quarter.

Santander logged a total return of 26.3%, while Banco Bilbao Vizcaya Argentaria SA and Sabadell registered gains of 25.2% and 24.7%, respectively. CaixaBank SA had a total return of 21.6%, Market Intelligence data shows.

Strong economic growth in Spain is expected to fuel growth and further bolster banks' profitability rebound as they navigate challenging geopolitical and global trade tensions.

Two Italian banks also made the top 15 list. Banco BPM SpA, which avoided a takeover by larger peer UniCredit SpA, had a total return of 28.4%. BPER Banca SpA, which bought Banca Popolare di Sondrio SpA, recorded a 22.3% gain.

– Download an Excel file on European bank financials. – Access indexes, including regional bank indexes, on the S&P Global Capital IQ Pro platform.

Greece-based CrediaBank SA was the best-performing European bank stock in the third quarter, with a total return of 99.8%. The company, formerly known as Attica Bank, recently signed a put option agreement to acquire a 70.03% stake in HSBC Holdings PLC's Malta unit for €200 million. Larger domestic peer Piraeus Financial Holdings SA delivered gains of 22.6% as it reported a higher-than-expected net interest income (NII) result for the second quarter.

Sweden's TF Bank AB (publ) ranked second on the list. The digital bank, which began trading on the Nasdaq Stockholm in July following a 3:1 stock split, plans to change its corporate name to Avarda Bank AB.

QNB Bank AS, the Turkish unit of Qatar National Bank QPSC, rounded out the top three, with a total return of 51.7%.

Poland-based Bank Polska Kasa Opieki SA and Bank Handlowy w Warszawie SA registered negative shareholder returns of 5.6% and 4.7%, respectively. Shares in the country's banks are yet to rebound after plummeting Aug. 22, following government proposals to increase the corporate income tax rate for banks to help fund defense and healthcare.

Some savings banks in Norway also took a hit during the quarter, with SpareBank 1 Nord-Norge, SpareBank 1 Sør-Norge ASA and SpareBank 1 Østlandet registering negative total returns ranging from 3.3% to 4.4%. DNB Bank ASA, Norway's largest bank, logged a negative return of 2.5%. The Norges Bank in September delivered a quarter-percentage-point cut in interest rates to 4%, citing an uncertain economic outlook, but projected only one rate cut per year in the coming three years.

Also on the list are Turkey-based Akbank TAS and Türkiye Vakiflar Bankasi TAO, with respective negative returns of 8.1% and 3.3%, respectively. The Turkish BIST Banks Index tumbled in September after a court ordered the removal of the Istanbul head of the main opposition Republican People's Party. The ruling dealt a fresh judicial setback to opponents of President Recep Tayyip Erdoğan, news outlets including Reuters and Bloomberg News wrote.