Banking Risk: Key Themes for 2026

Overall, banking sectors globally remained very resilient in 2025, and years of tighter regulations as well as cautiousness among global banks will likely continue to support financial stability broadly in 2026.

Tail risks — primarily those related to sovereign debt linkages, emerging technologies and a fast-growing nonbank financial sector — have increased, yielding shaky foundations.

The delicate balance between emerging tailwinds and persistent headwinds in the economic outlook for 2026 will mean that banking sectors face continued cautiousness in commercial bank credit growth, even with marginally improving nonperforming loans (NPLs). 

Below are our top 10 themes to watch in 2026:

Multiple factors indicate that bank lending will remain subdued in 2026. These include persistent trade and political uncertainties, modest projected economic growth, still-recovering corporate demand for new credit, competition with nonbank financial sector lenders for corporate financing in advanced economies, and ongoing risk aversion by banks globally.

Given these factors, we forecast only a modest increase in credit growth rates in 2026 compared with 2025, on a US dollar-adjusted basis. In the last year, roughly three-quarters of the world’s banking sectors were expanding credit at rates below their long-term trends. We forecast that this pervasive cautiousness will continue, with lending growth not projected to deviate significantly from recent trends in any region in 2026.

Recoveries from recent decelerating credit growth trends in emerging Asia and stronger growth in developing markets is likely to drive faster growth rates in these regions. 

We expect over half of the 121 banking sectors in our dataset to see NPLs improve in 2026. Banks in some jurisdictions that historically opted to retain NPLs to avoid crystallizing losses are using a variety of methods to address accumulated bad loans that are unlikely to be recovered.

In the Gulf Cooperation Council (GCC) region, banks are expected to continue making use of NPL sales to private third parties, while efforts to transfer NPLs to asset-management companies will be reinforced by banks in Asia due to a strong regulatory push. Regulators in Africa are also taking a stronger stance toward cleaning up legacy NPLs. 

Overall, we expect banks globally to continue drawing on provisions to write-off new NPL formation, keeping NPLs low by historical standards. 

Although corporate spreads and reference term yields have declined in 2025, prior increases in financing costs and the lagged transmission of monetary tightening have increased aggregate net interest burdens for firms. This is likely to continue, with debt-service pressures in 2026 being exacerbated as large volumes of debt come due.

Eurostat data indicates that bankruptcy declarations in the EU, despite having risen, have shown mixed trends, with tourism, transport and financial services most adversely affected in the third quarter of 2025. Small and medium-sized enterprises (SMEs), which have thinner capital buffers and proportionately more floating-rate exposure, are particularly vulnerable to higher interest costs. A gradual deterioration in loan quality among weakened corporations will weaken bank balance sheets in Central Europe and the Balkans by reinforcing the need for provisioning.

Beyond Europe, increased gearing — as indicated by greater net-debt-to-total-sales ratios — also appears to have developed in Latin America and the Middle East in 2025. The ratio is forecast to remain broadly stable in the Association of Southeast Asian Nations (ASEAN) region in 2026, although renewed trade frictions would be likely to lower manufacturing investment and profitability, with Asia relatively more exposed due to its integration in global value chains. 

High government debt stock levels in several emerging economies have increased governments’ reliance on their banking sectors to secure local currency funding. While this has arguably reduced risks of borrowing in hard currencies, it has increased the nexus between sovereign and banking sector risks, increasing the likelihood of feedback loops in which a deteriorating fiscal position worsens asset quality within banks’ portfolios and vice versa.

Unrealized net present value losses are also likely. In countries with less developed secondary markets, liquidity risks tend to be more pronounced. Sovereign debt represents an average of 15% of total banking sector assets in emerging markets, but some countries — such as Albania, Argentina, Egypt, Kenya, Pakistan, Sri Lanka and Ukraine — are significantly more exposed, extending risks into 2026.

The rapid growth of nonbank financial institutions (NBFIs) — particularly private credit markets (comprising nonbank direct lenders) in advanced economies such as the US and the UK — has created significant risks for traditional banks and the broader financial system.

NBFIs, which often operate with high leverage and rely on wholesale funding, have become increasingly intertwined with banks, leading to potential contagion risks. At end-2024, exposures of European Economic Area (EEA) banks to NBFIs accounted for 10.4% of their total assets, while US banks reported exposures of close to 10% of total loans.

This interconnectedness is further complicated by tightening bank regulations that have pushed nonfinancial corporations to seek nonbank financing alternatives, from entities widely viewed as riskier by traditional banks. Our baseline expectation does not forecast rapid growth in defaults affecting the NBFI sector in the coming year, but recent high-profile bankruptcies signal a deterioration in loan quality and indicate deteriorating counterparty risks for banks.

According to the Financial Stability Board (FSB), NBFI assets now represent nearly half of global financial assets. As a result, aggregate vulnerabilities related to leverage, liquidity mismatches and systemic risks have become more pronounced.

Consequently, regulators are increasingly prioritizing the strengthening of oversight mechanisms to address the inherent risks posed by NBFIs, particularly their interconnectedness with traditional banks, given the potential impacts of rising liquidity and asset quality risks on the wider financial sector. The EU‘s inaugural EU-wide stress test targeting NBFIs is scheduled to take place in 2026.

NBFI growth has been substantial in Asia-Pacific emerging economies, including mainland China, India, Indonesia and Mongolia, where NBFIs have increased aggregate credit availability. This trend is likely to continue, with NBFIs expanding their share of financial sector assets in 2026.

We forecast profitability metrics to remain above their historical averages over the coming year, although below their 2025 levels. This forecast largely reflects compressing net interest margins resulting from loosened monetary policy compared with cyclical highs after 2021. Furthermore, weaker credit growth projected through 2026 will limit interest income growth, a major component within emerging banking sectors’ revenues.

While advanced economies have improved their sensitivity to downward interest rate shocks, emerging economies are likely to experience more abrupt corrections if rates are lowered more than expected. Sectors that have achieved operational cost reductions are positioned more favorably to maintain their profits.   

The growing prevalence of stablecoins linked to the US dollar, their lower usage fees and potentially quicker transfers between counterparties across borders poses the threat of leakages for emerging market banking sectors. Emerging market banking sectors are likely to lose both local and foreign currency deposits to US dollar stablecoin offerings from larger and more international financial institutions based in advanced economies, with the latter potentially offering stronger credit risk (if issued by leading global banks) as well as access to a hard currency investment.

The preexisting prevalence of US dollar use in emerging market economies, either for trade purposes or as a store of value, increases the likelihood of funding competition and higher borrowing costs for banks as a consequence of growing issuance of foreign currency stablecoins.

Higher demand deposit prevalence increases the ease and likelihood of near-term shifts in depositor preferences away from conventional deposit accounts. For sectors with a heavy reliance on deposits, disintermediation threatens to weaken banks’ capacity to extend new lending and support domestic governments through debt purchases. However, the main use-cases of stablecoins remain predominantly focused on crypto trading, with the systemic relevance for banks currently limited and likely to grow gradually.

Banks are increasingly forming strategic partnerships with fintech companies in Brazil, Hungary, India, Kenya, South Africa and the United Arab Emirates, a trend likely to persist through 2026. This strategy aims to diversify revenue streams and reduce reliance on traditional banking services, potentially stabilizing and diversifying income sources.

By collaborating with fintechs, banks are more likely to enhance operational efficiency, improve customer experience and foster innovation, thereby strengthening their market positioning. Moreover, both central and commercial banks in Brazil, China, India, Mexico, Nigeria and South Africa are integrating AI into key processes to reduce costs and offer personalized financial services.

AI adoption is likely to streamline operations and provide tailored customer solutions, further solidifying banks’ market presence. However, these collaborations and technological integrations introduce new risks. The use of AI systems increases cybersecurity vulnerabilities, as sensitive data is shared across platforms. Additionally, reliance on AI for decision-making may lead to algorithmic biases, posing compliance and reputational risks.

Although governments’ capacity to support varies considerably, the propensity to support amid ongoing uncertainty appears strong, particularly regarding impacts from trade conflicts, political conflicts and natural disasters.

The propensity to support has become more pronounced since 2020, as most regulators adopted temporary relief measures for borrowers during the COVID-19 pandemic. Some of these measures are often extended or renewed by regulators when borrowers’ balance sheets worsen again.

Support is generally provided by banks to affected borrowers in vulnerable sectors through loan moratoriums, particularly in export sectors affected by US tariffs in 2025. Measures such as loan payment deferrals and exclusions of affected loans from NPL calculations are included for borrowers in Israel and Russia. These measures mitigate downside risks to asset quality and help avoid immediate deterioration, but they may obscure the true state of affected assets.

—With contributions from Thandeka Nyathi and Tan Wang