The European Banking Authority's risk assessment report for December 2025 analyzes the macroeconomic environment and market sentiment, as well as the quality of banks' assets and liabilities. It also addresses operational risks, geopolitical threats, and risk mitigation measures. This report provides an overview of the trends and challenges facing the EU/EEA banking sector.
This document is the Risk Assessment Report (RAR) of the European Banking Authority (EBA) published in December 2025. It covers the risk assessment of the banking sector in the European Union and the European Economic Area (EU/EEA) for the first half of 2025, with an analysis based on approximately 164 banks representing more than 80% of the EU/EEA banking sector. The report addresses the following themes: macroeconomic environment, asset quality, funding and liquidity, capital and risk-weighted assets, profitability, operational risks, geopolitical and geo-economic risks, and retail risk indicators. The data come from prudential reports, risk questionnaires (RAQ), market intelligence, and other micro-prudential sources, with a cut-off date of 31 October 2025 (p. 1-9, 13-14).
- Subject: The report analyzes risks and vulnerabilities of the EU/EEA banking sector in a context of geopolitical tensions, increasing fiscal pressures, and macroeconomic uncertainties.
- Importance: These factors affect financial stability, asset quality, lending strategies, risk management, and operational resilience of banks.
- Key findings:
- Moderate EU GDP growth (1.4% in 2025) despite trade and geopolitical tensions.
- Inflation stable around 2.6% in September 2025.
- Residential real estate markets recovering, supporting asset quality.
- Increase in sovereign exposures (+14% to EUR 4 trillion) and Stage 2 loans (9.4% of amortized loans), notably in commercial real estate and SMEs.
- Increased exposures to non-bank financial intermediaries (NBFIs), especially in the US and Cayman Islands, raising systemic risks.
- Robust liquidity with a shift in the composition of liquid assets towards more sovereign assets.
- CET1 capital at a record level of 16.3% in June 2025, despite higher risk-weighted assets linked to operational risks and CRR3/CRD6.
- High operational risks, notably cyberattacks, fraud, and third-party dependencies.
- Sustained profitability despite pressure on net interest income, thanks to commissions and cost control.
- Conclusions: The EU/EEA banking sector remains overall resilient but must manage increased risks related to geopolitical tensions, asset quality, and operational risks.
- Recommendations: Continue monitoring sovereign and NBFI exposures, strengthen geopolitical and operational risk management, and maintain prudent liquidity and capital management (p. 10-12).
This report was prepared by the EBA's Economic and Risk Analysis Department to provide a comprehensive risk assessment of the EU/EEA banking sector during the first half of 2025. It responds to the EBA's regulatory mandate to monitor market developments and inform European institutions and the public. The report relies on quantitative data from prudential supervision (COREP, FINREP) and qualitative data via the RAQ questionnaire sent to 85 banks in August-September 2025. It covers a representative sample of 164 banks from 30 countries, covering more than 80% of EU/EEA banking assets. The scope includes macroeconomic, credit, liquidity, operational, geopolitical, and retail risks. The main limitation is that only the first approximately 40 pages are available for this summary (p. 2-4, 13-14).
Macroeconomic environment and market sentiment:
- Moderate EU GDP growth (0.5% Q1 2025, 0.2% Q2 2025), inflation stable around 2.6% in September 2025.
- Robust labor market with stable unemployment at 6%, rising wages, supporting household credit demand.
- Geopolitical and trade tensions maintain high uncertainty, impacting business and consumer confidence.
- EU banking stock indices strongly increased (+60% since early 2025), outperforming other sectors and regions.
Asset quality:
- Total EU/EEA banking assets at EUR 29 trillion in June 2025 (+3.7% YoY), with notable increase in debt securities (+12.8%).
- Household loans up (+2.9% YoY), mainly mortgages, supported by employment and lower interest rates.
- Corporate loans growing more moderately (+1.8%), with strong increases in energy, technology, and defense sectors.
- Sovereign exposures sharply up (+14% to EUR 4 trillion), with a growing share outside the domestic country.
- NPLs stable at EUR 373 billion (1.84%), with decreases in some southern countries and increases in France, Germany, and Romania.
- High Stage 2 loans (9.4% of amortized loans), especially in commercial real estate (17.1%) and SMEs (14.9%), reflecting increased caution.
- Residential mortgage LTVs improve (57% of loans < 60% LTV), CRE more heterogeneous with risks in some Eastern countries.
Funding and liquidity:
- Bank liabilities at EUR 27 trillion (+4% YoY), with strong reliance on household deposits (30.7%) and debt securities (20.1%).
- Increase in interbank deposits (+3%) and decrease in NFC deposits (-3%).
- Increased issuance of preferred senior debt, preferred instruments to meet MREL requirements.
- Ratio of encumbered assets rising to 24.7%.
- Robust liquidity with average LCR at 161.7%, well above regulatory minimum.
- Composition of liquid assets shifting towards more sovereign assets (40% of HQLA) and less central bank reserves (49% of HQLA).
Capital and risk-weighted assets:
- Record CET1 ratio at 16.3% in June 2025, with a buffer of nearly 500 basis points above requirements.
- Increase in risk-weighted assets, notably due to operational risks and implementation of CRR3/CRD6.
Operational risks and resilience:
- High operational risks, dominated by cyberattacks (DDoS, ransomware), fraud, and legal risks.
- Cyberattack volume stable but high, with nearly half of banks without major attack for the first time in 3 years.
- DORA implementation improves incident management and cross-border coordination.
- Increased dependency on third-party providers, notably cloud and payment systems.
- Fraud amplified by artificial intelligence use, a growing threat to public trust.
Profitability:
- Pressure on net interest income (NII) due to margin compression.
- Profitability maintained through solid commission income and cost control.
- Low cost of risk (around 48-50 basis points).
- Strategies focused on cost efficiency, automation, digitalization, and outsourcing.
- Prudent outlook on future RoE increase, prioritizing cost control and commission growth.
Geopolitical and geo-economic risks:
- Persistent tensions impacting financial stability, asset quality, and banking strategies.
- Significant direct and indirect exposures to the United States, with stock price sensitivity to trade events.
- Increased formalization of governance frameworks, enhanced due diligence, integrated crisis scenarios.
Exposures to NBFIs:
- Rising exposures to NBFIs, notably in the US, Cayman Islands, and United Kingdom.
- These exposures increase systemic risks due to opacity and specific NBFI risks.
- Importance of continuous monitoring and prudent management of these risks (p. 15-38).
- Established facts:
- Moderate EU GDP growth (1.4% in 2025), inflation stable at 2.6%.
- Increase in banking assets to EUR 29 trillion, with loans and debt securities rising.
- Stable NPLs at 1.84%, with national and sectoral divergences.
- Record CET1 ratio at 16.3%, capital up despite rising RWAs.
- Average LCR at 161.7%, solid liquidity but modified HQLA composition.
- Increase in sovereign exposures (+14%) and Stage 2 loans (9.4% of amortized loans).
- Increase in third-party NBFI exposures (+10% YoY), notably US and Cayman.
- High operational risks, with cyberattacks and fraud leading.
- Assumptions:
- Asset quality robustness maintained thanks to employment and real estate recovery.
- Limited impact of geopolitical tensions on household credit demand.
- Increased caution in Stage 2 loan classification, use of overlays for external risks.
- Interpretations:
- Rising sovereign and NBFI exposures increase vulnerability to external shocks.
- Modified liquid asset composition exposes more to market risks.
- Pressure on net interest income pushes banks to prioritize cost control.
- Uncertainties:
- Future evolution of geopolitical and trade tensions.
- Medium-term impact of high Stage 2 loans on asset quality.
- Potential effects of operational risks linked to digitalization and third-party providers.
- Financial market reactions to macroeconomic and geopolitical developments (p. 10-12, 15-38).
The EBA concludes that the EU/EEA banking sector remains overall strong and resilient despite an environment marked by geopolitical tensions, increasing fiscal pressures, and macroeconomic uncertainties. Asset quality is supported by the recovery of real estate markets and a robust labor market, but the high share of Stage 2 loans and the increase in sovereign and third-party NBFI exposures call for heightened vigilance. Operational risks, notably cyber and fraud, remain high and require strengthened management. Profitability is maintained through diversified income and cost control, despite pressure on net interest income. The EBA recommends continuing close monitoring of sovereign and NBFI exposures, adapting governance frameworks for geopolitical and operational risks, and maintaining prudent liquidity and capital management in anticipation of regulatory developments (CRR3/CRD6). The report emphasizes the importance of integrating scenario planning and crisis management into banking practices (p. 10-12).
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