Jonathan Pierce of Credit Suisse said conditions are deteriorating for banks at a faster pace than previously thought because their bad debts are growing, yet many have been unable to reduce their balance sheets, Reuters stated.
As a result, they will experience a "relatively severe" downturn for the rest of this year and into the first quarter of 2009, he said. Dividends could be "slashed" almost industry-wide and governments may well be forced to inject more capital into the sector to keep some institutions afloat.
Mr Pierce's comments were echoed by Morgan Stanley analyst Huw van Steenis, who also predicts that Europe's banks will need another €83 billion in emergency aid.
The gloomy outlook follows a raft of negative results from banks in the UK and on the continent.
Earlier this week, the Royal Bank of Scotland said it expects to make its first annual loss in its 281-year history in 2008.