Geopolitics, political uncertainty, operating inefficiencies cloud stable outlook for French banks

Geopolitical tensions, continued political uncertainty in France, and poor operating efficiency may cloud the outlook for French banks in 2026 in an otherwise supportive operating environment where stable interest rates favour improved profit margins.

By Carola Saldias Castillo, Financial Institutions

French banks should achieve returns on risk-weighted assets of between 1.2% and 1.6% in 2026, slightly higher than last year and narrowing the gap to other EU banks, which may have passed peak profitability. Earnings growth will be driven by a stronger performance in retail banking as the benefit of asset repricing will finally support earnings stability. CIB earnings will remain robust but are likely to slow on the back of lower market volatility.

International expansion has become a key component of most French banks' strategic growth plans. Recent activity, such as BPCE's acquisition of Novobanco in Portugal, Crédit Agricole raising its stake in Italy’s Banco BPM, and BNP Paribas' acquisition of HSBC’s private banking activities in Germany, highlight a commitment to enhance geographic diversification.

Asset quality is likely to deteriorate slightly, though, driven by SMEs and companies in rate-sensitive sectors that have been adversely impacted by the lag effects of high interest rates.

The cost-income ratios of BNP Paribas, Credit Agricole, BPCE and Societe Generale will continue to be significantly higher than the EU average, running in a 57%-67% range compared with the EU average of around 46%. French banks have historically maintained large workforces and branch networks, while their business diversification that creates revenue generation opportunities outside of traditional banking adds complexity and cost.

Efficiency and cost-reduction initiatives remain key for French banks’ in 2026. Higher revenues have contributed to a lowering of the average cost-income ratio, but any further improvements will require the banks to actively manage costs.

BNP Paribas and Societe Generale are better positioned to realise efficiency gains as they are already implementing significant cost-reduction measures, limiting YoY growth in costs. The results of ambitious efficiency targets recently announced by Credit Agricole and BPCE in their updated strategic plans for 2028 and 2030, respectively, have yet to be seen.

Download the 2026 French banks outlook here.