European banking giants HSBC and Standard Chartered face the highest financial risk from recent Middle East conflicts, potentially putting significant pressure on their profitability, J.P. Morgan has warned.
The broader European banking sector has already felt the impact. The STOXX 600 Banks Index reached a three-month low at the start of this week, down approximately 6% since 27 February. On Thursday, HSBC shares fell by over 5%, while Standard Chartered saw a decline of around 2%. J.P. Morgan highlighted that rising energy costs in the Middle East could affect corporate lending across agriculture, manufacturing, construction, and transportation sectors.
Middle East Exposure of HSBC and Standard Chartered
| Bank | Revenue Exposure | PBT (Profit Before Tax) Exposure | Middle East Loan Portfolio (Fiscal 2025) |
|---|---|---|---|
| Standard Chartered | 8% | 12% | Approx. $9bn (UAE), with $6bn in UAE branch for Q3 |
| HSBC | 4% | 9% (including Egypt, Turkey, Saudi Arabia) | Approx. $23bn (primarily UAE & Qatar) |
For Standard Chartered, excluding Turkey and Egypt, revenue and PBT exposures are estimated at 8% and 12% respectively. HSBC’s exposure rises to approximately 9% when factoring in Egypt, Turkey, and Saudi Arabia. Additionally, HSBC holds a 31% stake in Saudi Arabia’s Awal Bank and has extra loan exposures linked to global multinational clients.
Risk Assessment and Profitability Pressure
According to J.P. Morgan, both banks’ Middle East portfolios are primarily concentrated in high-quality corporate loans, which reduces the probability of credit losses. However, the main risk lies in potential earnings pressure, as revenue and PBT could be impacted by regional instability and rising operational costs.
Other major European banks, including Julius Baer, Societe Generale, ING, Barclays, Banco Santander, BNP Paribas, and Deutsche Bank, have far smaller exposures, with revenue and PBT figures below 1%. Julius Baer derives around 11% of its total assets from Middle Eastern clients. Wealth management-focused banks such as UBS and Baer may benefit from diversified high-net-worth client portfolios, mitigating geopolitical risk.
Market Outlook
UBS Global Wealth Management issued a “neutral” rating for European banks in a note released on Wednesday. Analysts noted that while energy supplies may recover rapidly, long-term profit opportunities remain limited.
This analysis underscores the nuanced risk landscape for European banks with Middle East exposure, highlighting the potential for earnings pressure and market sensitivity, while also pointing to the relative resilience of diversified portfolios.