European banks: European banking stocks surged to their highest level since 2015 on Friday, buoyed by better-than-expected first-quarter earnings that suggested lenders were navigating a favourable operating environment.

The STOXX Europe 600 banks index hit 197.7, a peak last seen in October 2015, driven by a significant 5.9 per cent surge in NatWest's shares after the British bank's robust quarterly results.

With a year-to-date gain of 16.7 per cent, the index has outpaced the broader STOXX 600 and even surpassed US banking shares.

This resurgence marks a turnaround for European banks, which have faced significant challenges since the 2008 global financial crisis, including weak profitability and regulatory scrutiny. However, since the tumultuous period in March 2023 triggered by the banking crisis and the collapse of Credit Suisse, European bank stocks have rebounded.

The current environment, characterised by higher interest rates since 2022, has bolstered banks' profitability, prompting many to reward shareholders with dividends and buybacks, thus driving stock prices higher.

Russ Mould, investment director at AJ Bell, commented, "They're in a relatively sweet spot."

While European banking shares still have ground to cover to return to pre-crisis highs, recent earnings reports indicate resilience. NatWest's earnings surpassed expectations, following similarly positive results from Deutsche Bank and Barclays. BNP Paribas reported a decline in revenues but managed to reduce costs.

Despite lingering risks such as economic downturns and fierce competition for deposits and loans, investors seem increasingly drawn back to the sector, enticed in part by anticipated record dividends and buybacks this year.

Michael Christodoulou, an analyst at Berenberg, noted, "As the banks edge higher, they are becoming more important in the indexes, so not being involved starts to become problematic for investors and fund performance."

(with Reuters inputs)