Market outlook

Update: 12 May 2026

Risk statement 

As we are mainly active in banking, insurance and asset management, we are exposed to a number of typical risks for these financial sectors such as – but not limited to – credit default risk, counterparty credit risk, concentration risk, movements in interest rates, currency risk, market risk, liquidity and funding risk, insurance underwriting risk, changes in regulations, operational risk, customer litigation, competition from other and new players, as well as the economy in general. KBC closely monitors and manages each of these risks within a strict risk framework, but they may all have a negative impact on asset values or could generate additional charges beyond anticipated levels.

At present, a number of factors are considered to constitute the main challenges for the financial sector. These stem primarily from geopolitical risks which have increased significantly over the past few years, including the war in Ukraine, conflicts in the Middle East (see next paragraph), trade wars as a consequence of US tariff policies and, more generally, increasing tensions between the US and Europe. These risks result or may result in shocks for the global economic system (e.g., GDP and inflation) and the financial markets (including interest rates). European economies, including KBC’s home markets, are affected too, creating an uncertain business environment, including for financial institutions. Regulatory and compliance risks, for example in relation to capital requirements, anti-money laundering regulations, GDPR and ESG/sustainability, also remain a dominant theme for the sector, as does enhanced consumer protection. Digitalisation (with technology, including AI, as a catalyst) presents both opportunities and threats to the business model of traditional financial institutions, while climate and environmentalrelated risks are becoming increasingly prevalent. Cyber risk has become one of the main threats during the past few years, not just for the financial sector, but for the economy as a whole. This is partly driven by geopolitical tensions (state-sponsored cyberattacks), but is also increasingly supported by new technologies, such as the recent
developments surrounding Anthropic’s Mythos which enables AI-driven vulnerability discovery. Despite the limited information available about the Mythos threat, KBC has already taken necessary actions to increase vigilance and capacity to process a certain upcoming increase of zero day vulnerabilities. Finally, we have seen governments across Europe taking additional measures to support their budgets (via increased tax contributions from the financial sector), their citizens and corporate sector (by, for instance, implementing interest rate caps on loans or by pushing for higher rates on savings accounts).

Recent months have been dominated by an armed conflict between the United States, Israel and Iran that began in late February 2026. The conflict has resulted in regional and increasingly global instability, disrupting trade routes and supply chains, especially in energy and other fossil-fuel-related markets, and causing significant volatility on financial markets. Financial conditions have tightened, at times putting pressure on funding markets. As a consequence, global and European economic growth projections have been revised downwards, while inflation expectations have moved higher. This has also increased uncertainty around the future path of interest rates, which have already risen over recent months. KBC’s direct exposure to the Middle East region is very limited. Nevertheless, KBC is closely monitoring the macroeconomic impact of the conflict and potential spillover effects for the group and its customers, both financially and operationally, with particular attention to energy-related and energy-sensitive sectors and counterparties. Geopolitically driven cyber threats are an additional point of attention, including heightened threats directed at large US based technology companies, which play an important role as suppliers of critical digital infrastructure to the financial sector, including KBC.

We provide risk management data in our annual reports, quarterly reports and dedicated risk reports, all of which are available at www.kbc.com.

Our view on economic growth

The first quarter of 2026 was characterised by substantial geopolitical risks and extreme uncertainty (Greenland, Venezuela, renewed uncertainty about trade tariffs and, most recently, the war in Iran). The resulting energy price shock from this war in particular impacted the energy-importing European economy.

In the first quarter, US economic activity grew by 0.5% (non-annualised) compared to 0.1% in the fourth quarter of 2025 (which was impacted by, among other elements, the partial shutdown of government services). In general, however, the labour market and business investments remain resilient.

First-quarter growth in the euro area economy (0.1%) weakened compared to the fourth quarter of last year (0.2%). Growth in our core countries Belgium, the Czech Republic, Hungary, Slovakia and Bulgaria amounted to 0.2%, 0.2%, 0.8%, 0.0% (est.) and 0.6% (est.), respectively. Overall, growth in the euro area and our core markets is expected to remain relatively subdued in 2026 as a result of the current geopolitical environment and economic uncertainty.

Our view on interest rates and foreign exchange rates

In the euro area, headline and core inflation in April amounted to 3% and 2.2%, respectively. The upward inflation contribution of the energy component was particularly notable. Amidst substantial uncertainty about the magnitude and the duration of the energy price shock, the ECB kept its 2% deposit rate unchanged at its April policy meeting. At this stage, there is huge uncertainty as to what extent the ECB will react to the energy price shock, if at all.

The Fed, too, kept its policy rate unchanged at 3.625% in the first quarter at its April meeting. The Fed is expected to keep its policy rate at this slightly restrictive level for the remainder of 2026.

Since the start of the first quarter, German and US 10-year yields have, on balance, both risen by about 15 basis points, keeping the spread between them broadly unchanged. After the first quarter started off with a moderate easing of the bond yields, yields came under upward pressure since the start of the war in Iran.

Since May 2025, the Czech National Bank (CNB) has kept its policy rate unchanged at 3.50%. The CNB is likely to maintain this slightly restrictive interest rate policy for some time to get the underlying upside inflation risk under control. As a result of interest rate support and the overall convergence process of the Czech economy, we expect
the Czech koruna to appreciate further against the euro in the coming quarters.

In February 2026, the Hungarian central bank cut its policy rate to 6.25%. We expect the next rate cut towards the end of 2026. Monetary policy will remain restrictive for quite a while to bring inflation under control. The Hungarian forint sharply appreciated after the parliamentary election in April, benefitting from improved market sentiment.

For more detailed analyses and data, please refer to KBC Economics