Global banks are heading into 2026 preparing for a tougher credit environment and weaker profitability, according to McKinsey’s latest Global Banking Annual Review. The consultancy warns that a mix of slowing growth, higher funding costs and intensifying competition from non‑bank lenders could push returns on equity below the cost of capital in many markets, raising questions about the sustainability of recent sector gains.
The report notes that banks have enjoyed a period of strong earnings supported by higher interest margins and relatively benign credit losses following the pandemic and the initial inflation shock. However, it argues that this “golden window” is narrowing as the global rate‑cut cycle loses momentum and asset‑quality risks begin to surface in areas such as commercial real estate, consumer credit and leveraged lending. With household debt already at record levels in key economies like the United States and credit standards tightening, even a modest rise in unemployment could translate into higher delinquencies and provisioning needs.
Europe and the UK face an especially delicate balance. Banks there are dealing with sluggish growth, pressure from regulators to strengthen capital buffers and a property market still adjusting to years of higher rates. Analysts say exposures to offices, retail property and highly leveraged borrowers remain a concern, particularly where valuations have yet to fully reflect weaker demand and stricter environmental and performance standards. At the same time, political uncertainty and new trade frictions are clouding the outlook for cross‑border lending and investment banking.
In the United States, the outlook is more mixed but far from carefree. While large banks have reported solid capital levels and stress‑test results, they also face tightening regulations and renewed scrutiny of their interest‑rate risk management after the regional bank turmoil earlier in the decade. Commercial real estate stands out as a flashpoint, with experts warning that the next phase of stress will be “performance‑driven” as buildings struggle to meet tougher efficiency and usage benchmarks, not just refinancing challenges. That could put pressure on mid‑sized lenders and smaller institutions with concentrated portfolios.
Emerging markets in Latin America and Africa add another layer of complexity. Banks there must navigate volatile currencies, tighter global financing conditions and uneven post‑pandemic recoveries, even as they fund rapid growth in sectors like digital finance, healthtech and clean energy. McKinsey highlights the risk that long‑dated, capital‑intensive projects—particularly in the energy transition—may sit uncomfortably with traditional bank risk appetites, opening space for private credit and development finance institutions.
Facing these cross‑currents, the review urges bank leaders to accelerate strategic shifts rather than rely on macro tailwinds. Key priorities include modernizing core technology, embedding generative AI into risk and customer processes, and rebalancing portfolios away from low‑return legacy assets. It also stresses the importance of fee‑based businesses such as wealth management and payments, where competition from fintechs and big tech remains intense but profit pools are expanding.
Consultants and regulators alike argue that early recognition of credit issues will be crucial in 2026. Strong capital and liquidity positions give many banks a buffer, but delayed action on troubled exposures can quickly erode investor confidence and raise funding costs. For shareholders, the message is that the easy phase of the rate cycle is over, and future returns will depend less on macro uplift and more on execution, risk discipline and the ability to adapt business models to a more fragmented financial landscape.
