By almost any accounting measure, 2025 was a banner year for banks. McKinsey estimates that the global industry generated around $1.3 trillion of net income in 2025, up 7% on the record set in 2024 and more than any other industry1. Financial institutions delivered a 30% total shareholder return in 2025, topping every other sector, according to BCG's Future of Finance 2026 analysis of 1,498 institutions3. In the US, FDIC-insured institutions reported second-quarter 2026 net income of $90.1 billion and a return on assets of 1.37%6.
Yet beneath the headline, the story is less comfortable. Return on tangible equity (ROTE) has started to fall, from 12.4% in 2024 to 11.8% in 20251, and global net interest margins edged down from 1.65% to 1.63%1. Capital markets have noticed. Banking continues to carry the lowest price-to-book and price-to-earnings multiples of any industry13. The question for boards is no longer whether the rate windfall was real, but what replaces it.
A profitability peak the market does not believe
McKinsey's 2025 review showed that the industry's return on equity reached 10.3% in 2024, a 20-year high but still barely above the cost of equity2. At June 2025, the industry's price-to-book ratio stood at about 1.0, against a cross-industry average of roughly 3.02. The gap has narrowed only slightly since. BCG notes that 80% of global bank equity outside China now trades above book value for the first time in years, but that price-to-earnings multiples remain the lowest of any industry34.
Banking's valuation discount persists
Price-to-book ratio, global banking vs cross-industry average, June 2025 (x)
Note: Figures are approximate and as reported by McKinsey for June 2025.
The market's scepticism is not irrational. Investors are discounting three things at once. First, the margin tailwind is fading unevenly: US banks' NIM rose 9 basis points in 2025, Japan's 7 and the UK's 6, while the global average fell1. Second, competition for the customer is intensifying. The 1,000 largest fintechs increased their share of comparable revenue from 10% in 2021 to 17% in 2025, and their market capitalisation is now equivalent to 37% of that of banks1. Third, the cost base has not adjusted. BCG observes that operating costs "have barely moved relative to assets" and that industry headcount has grown by around 2% a year over the past three years34.
The 2025 scorecard: more profit, thinner returns
Selected global banking indicators
| Indicator | 2024 | 2025 |
|---|---|---|
| Global net income | ~$1.2tn | ~$1.3tn |
| Return on tangible equity | 12.4% | 11.8% |
| Net interest margin (global) | 1.65% | 1.63% |
| European bank ROE | 10.7% | 11.6% |
| Fintech share of comparable revenue (1,000 largest) | 10% (2021) | 17% |
Note: 2024 net income from McKinsey Global Banking Annual Review 2025; other figures from the 2026 edition.
Source: McKinsey & Company, “Global Banking Annual Review 2026: Precision with speed” (2026)
Regional divergence is widening
Performance is increasingly a regional and business-model story. Wealth management revenues helped lift US bank ROEs to around 12%, while European banks improved from 10.7% to 11.6%, mainly through operational performance1. In the US, Deloitte counts more than $250 billion of excess capital among the 20 largest banks5, capital that will either fund growth or be returned to shareholders. The winners are not simply the largest balance sheets; McKinsey's framing is that precision in where to compete, and now speed in executing, matter more than heft12.
“The productivity problem in banking is structural, not cyclical, and incremental digitization has not solved it.” — Andreas Biffar, managing director and partner, BCG
Where the next returns will come from
If rate income is no longer a reliable engine, the obvious levers are cost, fee income and pricing precision. The evidence suggests AI is now the main multiplier across all three. BCG reports agentic AI delivering more than 50% productivity gains in retail lending and lifting fee income by more than 30% in wealth management at early adopters4. Financial institutions plan to invest around 2% of revenue in AI this year, second only to the technology sector3. McKinsey estimates that AI pioneers could open a gap of up to four percentage points of ROTE over slow movers before those advantages are competed away2.
The difficulty is converting investment into realised returns. Deloitte found that only 4 of 50 large banks it analysed reported realised ROI from AI use cases in 2025, and that more than 90% of data users in banks said the data they needed was often unavailable or too slow to retrieve5. In other words, the constraint is less the model than the plumbing: fragmented data, siloed ownership and operating processes designed for humans handing work to other humans.
- Cost-to-serve redesign, not headcount trimming: re-engineer end-to-end journeys (onboarding, credit, servicing, reconciliation) so that agents do the repetitive work and people handle exceptions.
- Fee and capital-light growth: wealth, payments and transaction banking, where AI-driven advice and servicing can scale without proportional balance-sheet growth.
- Pricing and deposit precision: moving from product-level rate cards to customer-level economics, as margin compression makes every basis point visible.
- Capital allocation discipline: using near-real-time profitability data to decide where to compete, and where to exit.
The agenda for the next 18 months
BCG advises chief executives to concentrate on "six to eight high-impact bets" chosen for value impact and reusability4, and McKinsey calls for a new velocity of execution to match the pace of AI1. In practice, this means selecting a handful of value pools where productivity or pricing gains can be measured in the P&L within a year, building the shared data and control layer once, and reusing it across domains. The banks that do this well will fund the next wave of investment from the savings of the first.
The window matters. With rates moving again in 2026 and non-bank competitors compounding their share, a year spent on disconnected experimentation is a year in which the gap to leaders widens. The profitability of 2025 gives most banks the capital to act; the valuation data suggest the market is waiting to see who does.