blog — Jan 16, 2026
UK, Ireland, and Spanish Banking Equities Now Trading at Premium Amid Strong Sector Performance
Market valuations for banking equities in Spain, the UK, and Ireland rise above parity in 2025 after years of trading at discount. The median price to book value, and price to tangible book value, two key measures of how the market values a bank’s equity relative to net accounting value of its balance sheet, have risen to 1.26 and 1.46 in December 2025, respectively, across a sample of 22 banks that includes 13 UK banks, 3 Irish banks, and 6 Spanish banks.
More specifically, Spanish banking entities’ valuations dominate that of their UK and Ireland counterparts with the median price to book value and price to tangible book value sitting at 1.69 and 1.94, respectively. BBVA, the second largest Spanish bank by total deposits marked a 2.10 price to tangible book as of December 2025, the highest across the entire sample.
The Central Bank of Spain estimates in their 2025 Financial Stability Report for the cost of equity to be around 7.5% to 10.2%, well below the median return on tangible common equity for the region, which is projected to reach 17.2% in 2026, according to Visible Alpha, an S&P Global company. The Bank of England has not stated a specific cost of equity rate as this is a complex task, sensitive to the inputs used, and it validly argues that valuations rising above 1 is an indication of investors expecting returns to exceed the cost of investing into the sector and the expected level of risk.
Steady tangible common equity returns and growth in net interest margins, with the group median now expected to reach 2.44% in 2026, up from 1.45% in 2021, have reinforced the credibility and strength of the industry, indicating that the valuations are grounded in solid and observable profitability, and not just changes in investor sentiment.
Returns on tangible common equity rose significantly in 2023 due to a higher interest rate environment, which allowed banks to reprice their financial assets faster than their financial liabilities, increasing margins and leading to higher earnings. The consensus estimate return on tangible common equity for 2026 of BBVA is expected to reach 20.37%, once again the highest across the group, up from 11.9% in 2021.
Median common equity tier 1 (CET1) ratios, a measure of the amount of capital instruments a bank can easily mobilise to offset potential losses relative to the risk profile of their lending activities, is also expected to remain adequate and above minimum requirements for all banks and around the 12.5% to 15% target that large banks typically aim for. Thus, capital returns and profitability is achieved without the erosion of the capital base.
These banks have also returned capital to its shareholders through share buy-backs and dividends. The median dividend payout rate for the group, although still within conservative ranges, is expected to reach 44.25% in 2026, up from 38.58% in 2024. Therefore, improved profitability is expected to translate into higher capital returns. From a share buy-back perspective, total cash spent across the sample of 22 banks is expected to rise to £25.6bn in 2026, up from £7.85bn in 2021.
Stock market returns have also captured and reflect the strong momentum in the sector, with the S&P Europe BMI Banks Index total return from Jan 2021 to Dec 2025 up 321%, and the S&P Ireland BMI Banks Index up 521%, the highest across the BMI indices for the banks in these regions.