ECB Rate Hikes Set Stage for European Banks to Shine

The European Central Bank (ECB) has been on an aggressive rate-hiking cycle, increasing its benchmark rates by 25 basis points in June and again to 2.5% in September.

This decision is aimed at curbing rising inflation expectations driven by the Iran War energy shock, but it carries credit risks for banks that are more pronounced during supply shocks rather than demand-driven ones.

However, many of Europe's largest banks are increasing their 2026 net interest income (NII) guidance in response to higher projected rates.

Banco Santander is one such bank that stands to benefit from an ECB hiking cycle due to its large floating-rate mortgage portfolio, with over 41% of its mortgage book being variable-rate as of Q2 2026.