The Risk Assessment Report of the European Banking Authority for Spring 2025 analyzes the macroeconomic environment and market sentiment, as well as the composition and quality of banks' assets. It also addresses funding, liquidity, profitability, and operational risk issues, highlighting trends and forecasts for the banking sector. Finally, the report offers policy conclusions and suggested measures to enhance the…
This document is the "Risk Assessment Report Spring 2025" published by the European Banking Authority (EBA) in June 2025. It is a risk analysis report of the banking sector in the European Union (EU) and the European Economic Area (EEA). The scope covers macroeconomic themes, asset quality, liquidity, funding, profitability, operational risks, as well as related outlooks and policies. The report is based on data from 161 banks in 30 EEA countries, representing more than 80% of the EU/EEA banking sector, with data as of 31 December 2024 and analyses up to May 2025 (p. 2-15).
- Subject: Risk analysis and vulnerabilities of the EU/EEA banking sector in spring 2025, in a context of declining interest rates, geopolitical tensions, and economic uncertainties.
- Importance: The report sheds light on macroeconomic, financial and operational risks that may affect European banking and economic stability.
- Key findings:
- Moderate economic growth (1% in 2024) supported by lower rates and a robust labor market (EU unemployment 5.8% in March 2025).
- High geopolitical tensions, notably related to war and trade tensions, causing market volatility and increased defense spending.
- Notable bank exposures to manufacturing exporters to the United States, exposed to new tariffs.
- Banking profitability up (+9% in 2024), with a RoE of 10.5%, despite pressure on interest margins offset by commission and trading income.
- Solid CET1 ratio at 16.1%, with capital up by EUR 70 billion, supporting resilience.
- Growth in banking assets (+3.2% in 2024) driven by loans and securities, despite lower liquidity.
- Exposures to non-bank financial intermediaries (NBFI) at 10.1% of assets, a potential contagion source.
- Loan growth forecasts for corporates (4.3% in 2025) and households (2% in 2025).
- Slight asset quality deterioration with higher non-performing loans (NPL) at 1.88% and IFRS9 Stage 2 loans at 9.7%, mainly in household loans.
- Robust liquidity with LCR at 163.4% and NSFR at 127.1%, despite a downward LCR trend.
- Evolving bank funding: increased debt issuance, reduced reliance on central bank funding (end of TLTRO).
- Increased operational risks, notably cyber risks, financial crime and risks related to digital assets.
- Conclusions: The European banking sector remains overall resilient but faces increased risks linked to geopolitical tensions, asset quality and operational risks.
- Recommendations: The report highlights the need for continuous monitoring of exposures to NBFI, risks related to trade tensions, and operational risks, without specific measures in the provided excerpt (p. 11-13).
The report was prepared by the EBA's economic and risk analysis department, with contributions from several internal departments and committees. It aims to provide a comprehensive assessment of risks and vulnerabilities of the EU/EEA banking sector, based on quantitative and qualitative data from banking supervision, semi-annual questionnaires (RAQ), and market information. The scope covers 161 banks representing more than 80% of the sector, focusing on data as of end 2024 and analyses up to May 2025. Forecasts are based on banks' funding plans at end 2024, without reflecting subsequent geopolitical developments. The report responds to regulatory obligations for monitoring and informing European authorities (p. 2-15).
Macroeconomic environment and market sentiment :
- Moderate growth of 1% in 2024, inflation down to 2.6%, ECB key rates down to 2% in June 2025.
- Solid labor market (EU unemployment 5.8%), supporting consumption and residential real estate.
- High geopolitical tensions, increased defense spending, trade uncertainties (US tariffs) affecting confidence and growth.
- Increased financial volatility, impacted by tariff announcements and conflicts, with relative resilience of European bank equities (p. 16-19).
Asset side :
- Banking assets grew 3.2% in 2024 to EUR 28.2 tn, driven by loans (+3.4%), debt securities (+10.8%) and equities (+37%), despite liquidity decline (-13.7%).
- Household loans up (+2.2%), mainly mortgages (+1.8%) and consumer credit (+6.6%).
- Corporate loans slightly recovering (+1.4%), with caution in some sectors (commercial real estate, manufacturing).
- Exposures to NBFI at 10.1% of assets, a potential contagion source.
- Sovereign exposures strongly up (+9%), notably in France and Spain, with risk of stronger bank-sovereign link.
- Significant climate risks, with over 60% of corporate loans exposed to transition risks, and 20% of exposures to physical risks (p. 20-29).
Assets outlook :
- Moderate asset growth forecast (+1.7% in 2025), with rebound in corporate loans (+4.3%) and more moderate household loan growth (+2%).
- Liquidity expected to recover, slower growth in debt securities.
- Stable asset composition, with household loans around 25% of total assets (p. 29-31).
Asset quality trends :
- Slight asset quality deterioration: NPLs up to EUR 375 billion (1.88%), mainly in Germany.
- Strong increase in IFRS9 Stage 2 loans to 9.7%, a historic record, mainly in household loans (mortgages and consumer credit).
- Banks expect asset quality improvement, with NPL stabilization forecast (p. 31-34).
Liabilities: funding and liquidity :
- Bank liabilities up 3% to EUR 26.2 tn, with notable increase in debt securities (20.3% of liabilities).
- Customer deposits up, representing 31.1% for households and 17.2% for corporates.
- Central bank funding down (end of TLTRO), replaced by issued debt and deposits.
- Active funding markets in 2024, but increased volatility and lower issuance early 2025, impacted by geopolitical tensions.
- Critical importance of senior preferred debt issuance to meet MREL requirements, with large refinancing volumes in 1-2 years.
- Funding plans foresee increases in deposits, long-term debt and secured issuance (p. 35-40).
Operational risks and resilience :
- Operational risks rising, linked to digitalization, cyberattacks, financial crime, AML risks and legal risks.
- Growing bank exposure to digital assets, with opportunities but also infrastructure and cybersecurity risks (p. 66-72).
- Established facts: moderate EU economic growth, lower interest rates, higher banking assets and loans, slight asset quality deterioration, robust capital and liquidity ratios, increased sovereign and NBFI exposures.
- Assumptions: loan and asset growth forecasts based on banks' end 2024 plans, excluding subsequent geopolitical developments.
- Interpretations: geopolitical and trade tensions are key risk factors, likely to impact asset quality and funding conditions.
- Uncertainties: future evolution of geopolitical tensions, impact of US tariffs, capital markets developments and operational risks, notably cyber.
- The report highlights the current resilience of the banking sector but warns of increased risks and the need for ongoing vigilance (p. 11-13, 16-40).
The report concludes that the EU/EEA banking sector is overall solid, with robust capital buffers, improving profitability and adequate liquidity. However, risks related to geopolitical tensions, asset quality, exposures to NBFI and operational risks, notably cyber, require enhanced monitoring. The report implicitly recommends continuing to monitor sectoral exposures, risks related to tariffs, and operational risks, without specific measures in the provided excerpt. It stresses the importance of a functioning primary market for MREL funding and debt maturity management (p. 11-13, 35-40, 66-72).
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