EBA Risk Assessment Report Autumn 2025

EBA Risk Assessment Report 2025: Comprehensive Overview

The EBA Risk Assessment Report Autumn 2025, published in December 2025 by the European Banking Authority, provides the most comprehensive periodic assessment of risks and vulnerabilities facing the EU/EEA banking sector. Prepared by the Economic and Risk Analysis Department with contributions from the Supervision, Risks and Innovation Standing Committee (SUPRISC), this report serves as the authoritative reference for supervisors, policymakers, and market participants evaluating European banking stability.

The report covers the full spectrum of banking risks: macroeconomic conditions, asset quality, funding and liquidity, capital adequacy, profitability, operational risks, and emerging geopolitical threats. Drawing on supervisory data, market intelligence, and the EBA’s Risk Assessment Questionnaire completed by banks themselves, it provides both quantitative analysis and forward-looking risk assessment that shapes supervisory priorities across the European Union.

For financial professionals tracking European banking sector health, this report is essential reading alongside the Federal Reserve’s Financial Stability Report, providing a cross-Atlantic perspective on banking sector risks and regulatory responses. The findings have direct implications for investors, risk managers, and compliance professionals operating in or exposed to European banking markets.

Macroeconomic Environment and Market Sentiment

The EBA risk assessment opens with an analysis of the macroeconomic backdrop. EU GDP growth remained modest, with year-over-year rates reflecting the ongoing adjustment to higher interest rates and uncertain global trade conditions. Average inflation rates continued to moderate from their post-pandemic peaks, providing the European Central Bank with scope for gradual monetary policy easing, though core inflation remained sticky in several member states.

Equity markets showed mixed performance across sectors, with the EURO STOXX indices reflecting divergent outlooks for different industries. Banking stocks benefited from sustained profitability but faced headwinds from concerns about loan book quality and geopolitical exposure. Real estate markets exhibited a complex picture, with residential price indices stabilizing in some countries while commercial real estate continued to face valuation pressures across the region.

Sovereign debt dynamics remain a key concern, with EU government debt-to-GDP ratios elevated in several member states. Yields on 10-year sovereign bonds varied significantly across countries, reflecting different fiscal positions and perceived credit risks. The report notes that these sovereign exposures represent a meaningful portion of bank balance sheets, creating feedback loops between sovereign credit quality and banking sector stability, a theme also explored in the McKinsey Global Institute’s macroeconomic analysis.

EU Bank Asset Quality and NPL Trends

The EBA risk assessment report 2025 provides detailed analysis of asset quality across EU/EEA banks. Non-performing loan (NPL) ratios showed overall stability but with notable country-level variation. Some jurisdictions saw continued NPL reduction, benefiting from active portfolio management and secondary market sales, while others experienced upticks in specific loan segments, particularly consumer credit and small business lending.

NPL ratios by loan segment revealed important divergences. Mortgages secured by residential property maintained relatively low NPL rates, supported by property value appreciation and borrower resilience. Commercial real estate (CRE) loans showed more concerning trends, with NPL rates rising in markets that experienced the sharpest valuation corrections. The report provides CRE exposure data broken down by loan-to-value (LTV) buckets, revealing concentration risk in high-LTV segments that are most vulnerable to continued price declines.

A significant share of banks expect asset quality deterioration in the coming period, according to the EBA’s survey. The expectation is most pronounced for consumer lending and SME portfolios, where the delayed effects of higher interest rates on borrower repayment capacity are expected to materialize. This forward-looking pessimism contrasts with the relatively stable backward-looking NPL data, suggesting that the worst may still be ahead for certain loan books.

Stage 2 Loan Allocation in the EBA Risk Report

One of the report’s most insightful analyses examines Stage 2 loan allocation patterns — loans where credit risk has significantly increased since initial recognition but where no specific credit loss event has occurred. The share of Stage 2 loans across EU/EEA banks indicates a cautious approach to asset quality assessment, with banks preemptively upgrading risk classifications to reflect anticipated deterioration.

Year-over-year changes in Stage 2 allocation vary significantly by loan segment. Some categories show meaningful increases in Stage 2 classification, reflecting sector-specific stress factors. The volume changes in EUR billions reveal the economic scale of these reclassifications, with hundreds of billions in loan exposure moving between risk stages as banks update their forward-looking credit risk assessments.

The interaction between Stage 2 allowances and provisions provides insight into banks’ loss expectations. Increasing Stage 2 provisions relative to exposure suggest banks are building buffers against expected losses, while stable or declining provision rates might indicate either genuine improvement in credit quality or insufficient provisioning. The report notes that supervisors are closely monitoring provision adequacy, particularly in segments with elevated uncertainty about future performance.

Funding and Liquidity Positions of EU Banks

EU/EEA bank funding and liquidity positions remained generally robust according to the EBA report. The Liquidity Coverage Ratio (LCR) remained well above the 100% regulatory minimum across the sector, with liquid asset buffers composed primarily of central bank reserves and sovereign debt. The composition of liquid assets shifted slightly over the period, reflecting changes in monetary policy and market conditions.

Funding composition varied significantly across countries, with some banking systems more dependent on wholesale funding while others relied primarily on retail deposits. Debt and capital instrument issuances in 2025 reflected banks’ ongoing refinancing needs and capital management strategies, with a growing share of green bonds across debt classes — signaling the banking sector’s participation in sustainable finance initiatives.

The Net Stable Funding Ratio (NSFR) analysis, including USD-denominated positions, revealed that most banks maintained comfortable buffers. However, the report identifies pockets of vulnerability in foreign currency funding, particularly for banks with significant USD-denominated operations. The share of banks with LCR and NSFR in USD below 100% warrants continued supervisory attention, as foreign currency liquidity stress can amplify broader market disruptions.

Capital Adequacy and Risk-Weighted Assets Analysis

The EBA risk assessment report documents strong capital and leverage ratios across the EU/EEA banking sector. CET1 ratios remained elevated, reflecting years of capital accumulation through retained earnings and, in some cases, capital issuances. The distance between CET1 ratios and combined buffer requirements provides supervisors and investors with a measure of the sector’s resilience to stress scenarios.

CET1 requirements including Pillar 2 Guidance (P2G) vary significantly across countries, reflecting different supervisory assessments of bank-specific risk profiles. The report presents country-level data showing the interplay between regulatory requirements and actual capital ratios, enabling comparative analysis of capital adequacy across the European banking landscape.

Risk-weighted assets (RWA) composition by risk type reveals the relative importance of credit risk, market risk, and operational risk in determining bank capital requirements. Credit risk RWA dominates, with exposures and risk weights varying by asset class. The evolution of risk weight density across exposure classes provides insight into how banks’ risk profiles are changing over time, as also analyzed in the Apple annual report’s discussion of financial risk management frameworks.

EU Banking Profitability and Revenue Composition

Return on equity (RoE) remained solid across EU/EEA banks, though the report documents meaningful cross-country variation. Some banking systems delivered RoE above their estimated cost of equity — a critical threshold for value creation — while others continued to operate below this benchmark. The contribution of different P&L items to year-over-year RoE changes reveals the drivers and drags on profitability across the sector.

Revenue composition by country highlights the diversity of European banking business models. Some systems remain heavily dependent on net interest income, making them vulnerable to margin compression in a rate-cutting environment. Others have built more diversified revenue bases with significant contributions from fees, trading, and other non-interest income. The report notes that banks with more diversified revenue streams tend to show greater earnings stability.

Interest rate dynamics played a complex role in profitability. Year-over-year variations in household and non-financial corporate loan rates differed across countries, reflecting competitive dynamics and pass-through timing. Similarly, deposit rate movements varied, with the spread between lending and deposit rate changes determining the direction and magnitude of net interest margin impacts, a critical metric also tracked in the Federal Reserve’s stability assessment.

Fee and Commission Income in the EBA Report

The report dedicates a special analysis to fee and commission income trajectory, reflecting its growing importance as a revenue source. Total fees, expenses, and net fees development over the past five years shows a positive trend that partially compensates for pressure on traditional lending margins. Fee income has become increasingly critical as banks seek to reduce their dependence on interest rate-sensitive revenue streams.

Fee breakdown across the six largest contributing categories reveals the diversification of non-interest income sources. Payment services represent a significant and growing component, with assets involved in payment services measured in trillions of euros. Securities-related services, asset management fees, and advisory income also contribute meaningfully, though the relative importance of each category varies significantly across banking systems.

Banks’ targets for profitability improvement over the next 6-12 months prioritize fee income growth alongside cost management, according to the EBA survey. The focus on fee-generating activities reflects a strategic shift that has been accelerating across the European banking sector, driven by both competitive pressure and regulatory expectations for more sustainable business models that are less dependent on interest rate cycles.

Operational Risks and Cyber Threats in EU Banking

The EBA risk assessment report 2025 identifies operational risks as a growing concern for EU/EEA banks. Banks themselves rank cyberattacks and ICT disruptions among their primary operational risk drivers, alongside financial crime risks including money laundering and fraud. Total operational risk losses in 2024, measured as a share of CET1 capital, varied significantly across countries, reflecting different risk profiles and reporting standards.

Cyber threat intelligence presents a particularly concerning picture. The number of cyberattacks to which banks fell victim in H1 2025 increased across multiple severity categories, reflecting the growing sophistication of threat actors targeting the financial sector. The report categorizes attack frequency in intervals, providing supervisors with a sense of the distribution and intensity of cyber incidents across the banking sector.

Financial crime risks, documented over the October 2024 to September 2025 period, remain a persistent challenge. Anti-money laundering (AML) compliance continues to require significant investment, while the evolving nature of financial crime — including through digital channels — creates new vulnerabilities. The report emphasizes the importance of maintaining robust operational resilience frameworks, particularly as banks accelerate their digital transformation strategies and integrate new technologies like AI into their operations, themes explored in the McKinsey State of AI Report.

Geopolitical Risks and US Tariff Impact on EU Banks

The report dedicates significant attention to geopolitical and geoeconomic risks, reflecting their evolution from theoretical concerns to material financial sector impacts. The geopolitical risk index, tracked from 1985 to 2025, shows a marked escalation in recent years. EU bank abnormal returns following “Liberation Day” tariff announcements quantify the direct market impact of trade policy uncertainty on bank valuations.

EU banks’ direct and indirect exposures to the US — through both financial corporate lending portfolios and non-financial corporate clients with American operations — create transmission channels for US policy uncertainty into European banking sector performance. Banks with greater US exposure experienced measurably different stock price reactions to tariff announcements, highlighting the importance of geographic diversification in banking risk management.

The relevance of potential geoeconomic factors for EU banks, as surveyed by the EBA, reveals that trade policy uncertainty and macroeconomic volatility rank among the top concerns. Banks are responding by enhancing geopolitical stress testing, increasing geographic diversification, and strengthening country risk assessment frameworks. These measures represent a significant evolution in how banks approach non-financial risks, complementing the broader analysis in the EBA’s ongoing risk monitoring.

Retail Risk Indicators and Consumer Protection

The EBA’s retail risk indicators provide a consumer-focused perspective on banking sector health. Metrics tracking the share of loans with forbearance measures, non-performing mortgages, and non-performing consumer credit loans offer insight into household financial stress across EU member states. These indicators vary significantly by country, reflecting different economic conditions, borrower profiles, and lending standards.

Payment fraud indicators show concerning trends in some dimensions. The share of fraudulent card payments and fraudulent credit transfers, measured by both volume and value, highlights the ongoing battle between fraud prevention technology and increasingly sophisticated criminal methods. Year-over-year changes in fraud losses borne by users reveal whether consumer protection measures are keeping pace with evolving threats.

Financial inclusion metrics, including the percentage of adults with bank accounts and debit cards, provide broader context for the retail banking landscape. These indicators, derived from 2024 survey data, show continued progress toward universal financial access in most EU countries, though gaps remain — particularly in borrowing access, where a significant percentage of adults still rely on family or friends rather than formal financial institutions. For additional context on banking access and innovation, see the BIS Annual Economic Report.