Credit concerns around non-depository financial institutions, or NDFI, lending have increased following recent "high-profile" bankruptcies, UBS said Friday, adding that potential NDFI losses could affect earnings of major banks such as JPMorgan Chase (JPM), Bank of America (BAC), and Wells Fargo (WFC) by 12% to 15% in 2026.

The investment firm said in a note Friday that it conducted a stress test on major and regional lenders, modeling a "worst-case scenario" wherein NDFI losses mirror the peak losses seen in past corporate lending cycles, such as during the 2008-2009 global financial crisis and the early 2000s.

NDFI loans, which are loans made by banks to financial institutions that do not take deposits, have come under focus due to the emergence of fresh credit losses within this regulatory category. These loans make up about 14% of the total loan portfolios of banks covered by UBS and have grown around 60% since 2018, the note said.

According to the stress test, regional banks such as Huntington Bancshares (HBAN) and PNC (PNC) could see a dent to EPS by around 12%, compared with a 15% hit to larger banks in 2026. However, under an alternative scenario where only 50% of the NDFI book is stressed, EPS is seen to decline by 7% to 8%, UBS said.

UBS said that banks would still remain profitable, with a negligible impact on tangible book value.

"Whether credit issues are episodic or cyclical, we believe the best line of defense is strong PPNR (pre-provision net revenue) power," UBS said.

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