Investment bank UBS has maintained a positive stance on European banks, identifying Greece as its preferred market amongst nations with heavy exposure to floating interest rates.

Although global investors already hold substantial positions, they remain reluctant to significantly increase overall exposure for now.

The financial institution projects that European bank earnings per share could rise by 13 per cent in 2026, 15 per cent in 2027, and 10 per cent in 2028.

This steady growth should be driven by credit expansion, higher equilibrium interest rates, and a steeper yield curve, alongside upcoming upward earnings revisions.

Should high inflation or stagflation emerge, investors may pivot towards floating-rate markets including Greece, Italy, Ireland, Spain, and Portugal.

British and French lenders could face harsher pressure during such economic conditions due to deposit structures and mortgage portfolio characteristics.

Greece explicitly stands out as the top pick within this floating-rate group.

Piraeus Bank was singled out as an attractive stock capable of relying on specific corporate catalysts rather than general sector tailwinds.

ABN Amro, BAWAG, BCP, Raiffeisen, Santander, and Standard Chartered were placed in the same stock category.

“Investors are now actively seeking stories with their own catalysts, as several banks have already benefited from the general macroeconomic environment,” UBS analysts noted.

Valuations remain favourable, with European lenders trading at a discount of nearly 30 per cent compared to the broader market.

The sector trades at 10.4 times estimated 2027 earnings and 9.5 times 2028 earnings, with total capital distribution yields reaching seven to eight per cent.

Even without multiple expansion, the European banking sector could deliver a total return of around 35 per cent over a two-year period, supported by credit growth and a favorable regulatory environment.