(Bloomberg) -- European banks face multiple headwinds but analysts from Barclays Plc to Goldman Sachs Group Inc. remain bullish on the sector — albeit selectively.

Lenders are the top-performing equity group in Europe in 2024, up 26% year-to-date. But slowing economic growth, lower interest rates and political turmoil are among the challenges stacking up for the sector.

“At first look, the current environment looks challenging for the European banks,” Barclays analysts including Paola Sabbione and Flora Bocahut wrote in a note Friday. “This leads some to ask, why invest in the European banks if net interest income will decline on lower rates and provisions increase in a dull macro environment? We disagree with that view and continue to find European banks attractive.”

The Barclays analysts said stock prices still don’t reflect the structural improvements of lenders in terms of profitability and shareholder returns, as the sector trades below its long-term average price-to-earnings ratio and at a discount to the broader market. European banks will offer on average a yield of 10.3% next year, including dividends and buybacks, they said.

The scenario for banks will become more challenging as economic growth in the euro region slows and the European Central Bank keeps reducing interest rates, hurting their lending margins. That will make 2025 a “difficult year” for lenders, Goldman Sachs analysts said in a note Thursday.

Still, they remain “selectively constructive” overall as rising credit demand, deposit growth, hedging and fees growth should protect revenues. The Goldman analysts upgraded Societe Generale SA to neutral from sell, and kept buy ratings on several banks including BNP Paribas SA, Deutsche Bank AG and UBS Group AG.

At JPMorgan, analysts led by Kian Abouhossein moved to a more balanced view on European banks going into 2025, from their earlier constructive view. They expect dispersion in performance between banks and focus on bottom-up stock selection geared to banks less reliant on net interest income.

Valuations remain supportive despite the strong performance in recent years, the JPMorgan analysts wrote. Their top picks are UBS, Deutsche Bank, Barclays, Intesa Sanpaolo SpA and Natwest Group Plc. They’re steering clear of French, Nordic and UK Asian banks as well as lenders geared to net interest income, such as domestic Spanish banks.