“Stable But Stretched”: Global Lenders Navigate War, Tariffs And AI Credit Risks

Global banks head into the second quarter of 2026 in a paradoxical position: headline balance sheets look resilient and regulators broadly expect “stability,” yet a mix of Middle East war risk, tariff shocks and AI‑related disruption is quietly stretching business models and credit portfolios.

S&P Global Ratings’ banking outlook for 2026 sums up the mood as “broadly stable, but watch the fault lines.” Analysts flag four key risks that could still derail the sector: escalation in geopolitical conflicts (including the Iran war), stronger‑than‑expected spillovers from tariff shocks, a weakening of regulatory environments, and evolving threats from climate change and new technologies such as generative AI.​

Those concerns are no longer theoretical. S&P Global Market Intelligence’s March banking‑risk review notes that risk aversion after fresh US tariff moves, combined with only limited monetary easing and tighter prudential rules, is already keeping headline credit growth subdued across many emerging markets. At the same time, a “2026 banking twist” in the US yield curve – with 10‑year Treasury yields drifting near 4.1% while short‑term funding sits slightly higher – is squeezing net interest margins and spooking investors in regional and diversified lenders.

In early March, bank stocks suffered one of their most volatile sessions since the mini‑crises of 2023, with broad US banking ETFs falling around 5% in a single day on fears that a near‑flat or inverted curve is “the antithesis of the traditional banking business model.” That sell‑off underscored how quickly sentiment can turn once markets see both slowing PMIs and sticky core inflation – a stagflationary mix that threatens credit quality and margin at the same time.​

Emerging‑market banking systems face a different but related set of pressures. In Zambia, new Basel III liquidity rules and the planned introduction of the Net Stable Funding Ratio in mid‑2026 should strengthen long‑term funding and reduce maturity mismatches, but could simultaneously slow credit growth and tighten the “bank–sovereign nexus” as lenders load up on high‑quality liquid assets such as government bonds. In Lebanon, an Ankura report cited by S&P indicates that most banks lack liquidity to meet a proposed four‑year repayment plan to depositors; the sector faces obligations of around 20 billion dollars over four years with shareholders’ equity under 5 billion dollars, forcing debates over gold sales and loss recognition.​

In advanced economies, regulatory recalibration is also back on the agenda. US Federal Reserve governor Michelle Bowman has outlined a revised capital plan under which big‑bank requirements would fall by a “small amount” compared with earlier Basel III “endgame” proposals, easing some of the burden that had worried lenders and politicians. S&P notes that any broad weakening of regulatory environments could become a risk in itself if it encourages more leverage or looser risk controls just as external shocks mount.

All of this is happening as banks scramble to understand how AI will reshape their own risk profiles. Generative AI promises efficiency and new revenue streams, but it also introduces model‑risk, cyber‑risk and data‑governance challenges that traditional frameworks did not fully anticipate. Financial‑crime specialists warn that AI‑powered fraud and synthetic identities are already testing banks’ defences.

The emerging consensus among supervisors is therefore cautious. Stress tests are being re‑tuned to include more severe geopolitical and tariff scenarios; liquidity and capital policies are being refined rather than aggressively loosened; and boards are being told to treat AI as a strategic risk, not just a cost‑saving tool.

For now, the baseline still points to a broadly stable global banking sector in 2026. But as the “2026 twist” in markets and geopolitics becomes more pronounced, banks will increasingly be judged not just on loan books and profits, but on how well they manage the complex intersection of war, tariffs, AI and regulation.