In a striking reversal, major European banks are rushing to deepen ties with the defense industry, a sector once viewed with caution due to reputational risks but now seen as a cornerstone of economic and strategic stability, Bloomberg reports. Institutions like BNP Paribas SA, Deutsche Bank AG, Commerzbank AG, and Societe Generale SA are leading the charge, forming partnerships and launching initiatives to support Europe’s rapidly expanding military sector.
This shift, driven by heightened geopolitical concerns and a push for regional security, is reshaping the financial landscape, with banks reorienting policies and resources to capitalize on a surge in defense spending. The move marks a significant departure from past practices, as lenders seek to align with government priorities and tap into a growing market.
For decades, European banks approached the defense sector with hesitation, wary of public backlash and ethical concerns tied to financing weapons manufacturers. The industry was often sidelined in favor of sectors like green energy, which aligned with the region’s focus on sustainability. However, recent global developments have prompted a reevaluation.
The European Union’s defense spending has surged, with member states committing billions to modernize military capabilities. In 2024, EU countries collectively allocated over €270 billion to defense budgets, a figure expected to grow as governments prioritize security. This has created a lucrative opportunity for banks, which are now positioning themselves as key players in financing everything from fighter jets to cybersecurity systems.
One notable development came in early 2025 when the European Banking Federation announced the formation of a task force dedicated to defense financing. The initiative, backed by major lenders including BNP Paribas, Deutsche Bank, UniCredit SpA, Intesa Sanpaolo SpA, ING Groep NV, and Cooperative Rabobank UA, aims to streamline financial support for the defense sector.
The task force, established in April 2025, is designed to enhance the industry’s capacity to fund a significant increase in regional defense investments, according to a statement from the European Banking Federation. This move underscores the banks’ commitment to aligning with Europe’s strategic goals, particularly as governments push for greater self-reliance in military production.
BNP Paribas has taken a bold step into the defense market with the launch of a new exchange-traded fund [ETF] focused on European defense companies. The BNP Paribas Easy Bloomberg Europe Defense ETF, listed on Euronext Paris in May 2025, tracks the Bloomberg Europe Defense Select Index, which includes approximately 30 companies critical to the defense ecosystem. Marie Sophie Pastant, head of ETF and index portfolio management at BNP Paribas Asset Management, emphasized the strategic importance of the fund, noting that it targets firms with significant relevance to defense activities.
The ETF is expected to expand to other exchanges, including Deutsche Börse Xetra and Borsa Italiana, offering investors a new avenue to capitalize on the sector’s growth. Sabrina Principi, global head of business development for ETFs and indices at BNP Paribas, highlighted the fund’s potential, stating that the European defense industry is poised for significant expansion in the coming years.
Deutsche Bank has also made significant strides, establishing a dedicated team to handle defense-related deals. Some experts said in May 2025 that Deutsche Bank is actively increasing its exposure to the defense industry. This includes financing projects that support the production of advanced military hardware, such as the Eurofighter Typhoon, a multirole fighter jet developed by a consortium of European companies, including Airbus SE, BAE Systems Plc, and Leonardo SpA.
The Eurofighter, capable of speeds up to Mach 2 and equipped with advanced radar and missile systems, represents the kind of high-tech defense asset banks are now eager to back. Its versatility in air-to-air and air-to-ground missions makes it a cornerstone of European air forces, with over 600 units delivered since its introduction in 2003.
The Eurofighter Typhoon, a twin-engine jet with a delta-wing design, is a prime example of the sophisticated hardware driving demand for financing. It features a CAPTOR-E radar system, which provides enhanced target detection and can carry a range of weapons, including AMRAAM missiles and precision-guided bombs. Compared to its U.S. counterpart, the F-35 Lightning II, the Eurofighter offers lower operational costs and greater agility in dogfights, though it lacks the F-35’s stealth capabilities.
The jet’s production and maintenance require substantial capital, creating opportunities for banks to fund supply chains and infrastructure. Similarly, European defense firms like Rheinmetall AG, a German company producing tanks and artillery systems, are seeing increased financial support.
Rheinmetall’s Leopard 2 tank, widely regarded as one of the world’s most advanced main battle tanks, features a 120mm smoothbore gun and advanced armor, making it a critical asset for NATO allies. Its production has ramped up to meet demand from countries like Ukraine, further straining financial resources that banks are now stepping in to provide.
The pivot toward defense financing is not without precedent. During the Cold War, European banks played a significant role in supporting NATO’s military buildup, though the scale was smaller and the public scrutiny less intense. In the 1980s, lenders like Deutsche Bank and Commerzbank provided loans for projects tied to NATO’s defense infrastructure, including airbases and missile systems.
However, the post-Cold War era saw a shift toward civilian industries, with banks prioritizing sectors like technology and renewable energy. The current resurgence of defense financing reflects a return to strategic priorities last seen in that earlier era, driven by new threats and a fragmented global order.
Commerzbank, once struggling with its own financial challenges, has also joined the trend. In recent months, the bank has expanded its corporate banking division to include specialists focused on defense clients. This move comes as Commerzbank fends off takeover attempts by UniCredit, with the German government emphasizing the bank’s importance to national interests.
The bank’s involvement in defense financing aligns with Berlin’s push to bolster domestic military production, particularly for systems like the IRIS-T air defense missile, developed by Diehl Defence. The IRIS-T, a short-range infrared-guided missile, is designed to counter aircraft and drones, offering a European alternative to the U.S.-made Patriot system. Its compact design and high maneuverability make it a vital tool for modern air defense, with Germany and other EU nations increasing orders in response to regional security concerns.
Societe Generale, another major player, has been quietly adjusting its policies to accommodate defense clients. The French bank has a long history of financing aerospace and defense firms, including Airbus, which produces both commercial aircraft and military helicopters like the NH90. The NH90, a multirole helicopter used by several NATO countries, features advanced avionics and can perform missions ranging from troop transport to anti-submarine warfare.
Its production requires significant investment, and banks like Societe Generale are stepping in to fill the gap. The bank’s efforts are part of a broader trend among French lenders, which have historically been more open to defense financing due to France’s robust military-industrial complex.
The European Investment Bank [EIB] is also playing a pivotal role. In recent years, the EIB has expanded its mandate to include defense-related projects, a departure from its traditional focus on infrastructure and sustainability. In 2024, the EIB committed €6 billion to security and defense initiatives, including €1 billion for small and medium-sized enterprises in the defense sector.
This funding, often in the form of loans, is designed to mobilize additional private investment, with the EIB estimating that its contributions could leverage up to €25 billion from commercial banks by 2027. The EIB’s involvement provides a stamp of legitimacy, encouraging private lenders to enter a sector once considered too risky.
The shift has not been without challenges. Banks face complex regulatory environments, as EU member states have varying rules on defense financing. Some countries, like Germany, have historically imposed strict export controls on military equipment, complicating cross-border deals. Public perception remains another hurdle.
While defense spending enjoys growing support amid security concerns, some advocacy groups criticize banks for prioritizing profits over ethical considerations. To address this, lenders are emphasizing their role in supporting regional stability, framing their involvement as a contribution to collective security rather than a purely financial play.
The financial implications are significant. The Stoxx 600 Banks Index, which includes major lenders like BNP Paribas and Societe Generale, has seen volatility in 2025, with a sharp 10% drop in early April due to trade tariff concerns, followed by a 9.3% rally later that month as markets stabilized. The defense sector’s growth is expected to bolster bank revenues, particularly in corporate and investment banking.
Analysts estimate that defense-related financing could account for a growing share of bank portfolios, with some projecting a 15% increase in loan volumes to the sector by 2028. This comes as European banks outperform their U.S. counterparts, with Morgan Stanley analysts upgrading their outlook on the sector in May 2025, citing its resilience amid global uncertainties.
The defense industry itself is undergoing a transformation. Companies like Thales SA, a French firm specializing in radar and missile systems, are expanding production to meet demand. Thales’ Crotale missile system, a short-range air defense platform, is being deployed by several EU nations to counter drone and missile threats. Its ability to engage low-flying targets makes it a critical asset in modern warfare, and its production requires substantial financing for research, development, and manufacturing.
Similarly, Saab AB’s Gripen fighter jet, a Swedish-built aircraft known for its cost-effectiveness and advanced electronics, is seeing increased orders from Eastern European countries. The Gripen, which competes with the Eurofighter and F-35, offers lower maintenance costs and rapid deployment capabilities, making it attractive for nations with limited budgets.
The historical context of Europe’s defense industry adds depth to the current trend. During World War II, European banks played a limited role in financing military efforts, as governments relied heavily on state funding. The post-war period saw the rise of NATO, which shifted much of the financial burden to the United States. However, the EU’s push for strategic autonomy in recent years has changed the calculus.
Initiatives like the European Defence Fund, launched in 2017, have funneled billions into collaborative projects, creating a need for private-sector financing. Banks are now stepping into this role, leveraging their expertise in large-scale project finance to support everything from naval shipbuilding to satellite systems.
The involvement of banks extends beyond traditional lending. Some are exploring innovative financial instruments, such as green bonds adapted for defense projects with dual-use applications, like cybersecurity or border surveillance. These instruments aim to attract socially conscious investors while addressing security needs.
Others are working with governments to structure public-private partnerships, particularly for large-scale projects like the Future Combat Air System [FCAS], a next-generation fighter jet program led by France, Germany, and Spain. The FCAS, expected to enter service in the 2040s, will integrate drones, satellites, and artificial intelligence, requiring investments estimated at €100 billion over its lifetime.
For U.S. readers, the European banks’ pivot offers a contrast to the American financial sector, where defense financing has long been a mainstay. U.S. banks like JPMorgan Chase & Co. and Bank of America Corp. have established relationships with firms like Lockheed Martin and Raytheon, which produce the F-35 and Patriot systems, respectively.
The U.S. defense budget, which reached $816 billion in 2024, dwarfs Europe’s, but the EU’s rapid increase in spending is narrowing the gap. European banks’ newfound enthusiasm for defense could challenge U.S. dominance in global defense financing, particularly as EU firms compete for contracts in Asia and the Middle East.
The trend also raises questions about sustainability. While banks are reaping short-term gains, the long-term risks include geopolitical instability and potential oversaturation of the defense market. If tensions ease, demand for military hardware could decline, leaving banks exposed to non-performing loans. Moreover, the ethical debate surrounding defense financing is unlikely to fade, as public scrutiny intensifies. For now, however, Europe’s banks are betting on the sector’s growth, viewing it as a strategic necessity in an increasingly uncertain world.
From a broader perspective, the banks’ embrace of the defense industry reflects a pragmatic response to a shifting global order. As Europe seeks to assert its strategic autonomy, financial institutions are positioning themselves as enablers of this ambition.
Their willingness to adapt underscores the interconnectedness of finance, security, and geopolitics, raising a critical question: Can banks balance profitability with the ethical and regulatory challenges of financing a sector as complex and controversial as defense? The answer will shape not only their bottom lines but also the future of European security.
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