(Bloomberg) -- European banks’ share buybacks may have finally peaked as rising valuations prompt executives to look at other ways to deploy excess cash.

Ten of the euro area’s biggest lenders are set to repurchase €15.4 billion ($16.6 billion) of their own stock this year, according to calculations by Bloomberg based on company disclosures. That compares with €21.2 billion in 2023.

European banks have rebounded since the pandemic as regulators lifted restrictions on shareholder payouts and the industry used buybacks to quickly distribute excess capital. Yet the boost to valuations that turned banks into the best-performers among European stocks over the past two years has also made repurchasing stock less attractive.

“What the banks have done thus far is really use the opportunity to increase buybacks rather than proceed with M&A,” Andrew Coombs, a banking analyst at Citigroup Inc. in London, told investors on a conference call on Thursday. “They look to be in the strongest balance sheet, profitability positions they have been in a long time.”

The benefit of buybacks, however, “dissipates” as the gap between the share price and the bank’s book value narrows, he said. High interest rates, meanwhile, weigh on demand for loans, making it difficult to deploy excess capital by increasing the size of the loan book. That helps explain a recent increase in deal announcements, Coombs said.

In the latest example, Banco Bilbao Vizcaya Argentaria SA said last week that it approached Banco Sabadell SA about a potential deal to create a Spanish banking giant. 

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