UBS has named Barclays PLC (LSE:BARC) and NatWest Group PLC (LSE:NWG) among its top picks in European banking, arguing that the sector remains attractively priced despite investor anxiety around macroeconomic risks and geopolitical uncertainty.
In a wide-ranging note on European banks published on Thursday, the bank's analysts set out key questions and financial forecasts for the sector, with Barclays carrying a 'buy' rating and a price target of 580p against a current price of 422.6p, implying total returns of around 41% including dividends.
NatWest Group also holds a 'buy' rating with a target price of 780p, while Lloyds Banking Group is rated 'neutral' with a target of 108p and HSBC is rated neutral with a target of 1,404p.
On Barclays, analysts led by Jason Napier flagged the bank's guidance for income growth of more than 5% a year as a key area of focus, noting that this included roughly 2.5 percentage points of support from its structural hedge and targets for high single-digit annual income growth in its US consumer business.
UBS also highlighted Barclays' exposure to non-bank financial corporations as a risk worth monitoring, pointing to the bank's disclosed £298 billion in performing exposure to other financial corporations at the end of 2025, nearly four times its disclosed exposure to non-financial corporates.
For NatWest, which has guided for total income of £17.2 billion to £17.6 billion in 2026, UBS questioned whether the target for volume growth of more than 4% a year in customer assets and liabilities could be achieved without compressing margins.
The bank's £2.7 billion acquisition of Evelyn Partners, the wealth management business, was flagged as a point of investor scrutiny, with questions raised over whether the price represented value and whether NatWest had sufficient bandwidth to absorb another integration.
On Lloyds, rated neutral, UBS noted the bank's guidance for net interest income of around £14.9 billion in 2026, representing growth of 9% to 10%, with COVID-era mortgages rolling off and deposit competition presenting risks to the forecast.
More broadly, UBS said European banks had delivered a strong set of fourth-quarter 2025 results, with 81% of banks under coverage producing more pre-provision profit than consensus had expected.
The sector trades at roughly a 36% discount to the wider European equity market on a price-to-earnings basis, which UBS said it viewed as an attractive entry point given rising returns on tangible equity.