FRANKFURTMADRIDMILAN, Jan 29 Reuters European banks39; run of soaring profits and record shareholder payouts faces a big test this week when investors assess how fast the boost from higher interest rates is fading, and if a weak economic outlook will make life tougher.

Spain39;s BBVA reports fourthquarter numbers on Tuesday, Santander on Wednesday, Deutsche Bank and BNP Paribas on Thursday and UniCredit the following Monday. Other euro zone banks and Switzerland39;s UBS follow.

The STOXX Europe 600 banks index hit its highest since mid2018 this month, propelled by a recovery in profitability thanks to higher rates, record shareholder payouts and little provisioning for bad loans.

Yet as banking executives bask in the good times, investors are concerned that the tide is turning.

PAST THE PEAK

Retailfocused lenders which earn most of their money from the difference between loan income and deposit costs have benefited most from rising rates, but bigger, diversified banks such as Deutsche and BNP Paribas have also seen profits.

Investors appear jittery, however, with a small miss in fourthquarter net interest income NII from Spain39;s Bankinter last week causing a 6 drop in its stock price and dragging down rivals39; shares.

JP Morgan analysts warn that lower rates will lead to a downgrade cycle across the sector. After an estimated 22 net interest income NII jump in 2023, the bank expects European lenders to show limited NII growth this year and zero earnings growth….