European banking sector remains strong amid geopolitical uncertainty

The European Banking Authority (EBA) published its Q4 2025 Risk Dashboard (RDB), confirming that the EU/EEA banking sector remains robust with strong capitalisation, ample liquidity, and solid asset quality. This assessment comes amid increased global economic uncertainty following renewed conflict in the Middle East.

For the first time, the RDB is published alongside the new Capital Requirements Regulation/Capital Requirements Directive (CRR3/CRD6) dashboard, replacing the previous Basel 3 monitoring report.

The RDB reports that EU/EEA banks’ direct exposures to Middle East counterparties totaled EUR 132 billion at the end of 2025. These include approximately EUR 47 billion in loans and advances to banks and financial corporations and EUR 33 billion to non-financial corporations. While these exposures are less than 0.5% of total assets, escalating tensions could lead to second-round effects such as higher energy prices, inflation, weaker economic growth, and supply chain disruptions, particularly affecting energy-intensive sectors.

Bank resilience is supported by capital buffers and profitability. Risk-weighted assets increased slightly by over 1% in 2025, reaching EUR 10.2 trillion in Q4. The common equity tier 1 (CET1) ratio remained stable at 16.3%. Return on equity stayed steady at 10.4%, and the net interest margin (NIM) increased to 1.6%, after a decline earlier in the year. The cost-to-income ratio rose to its highest since March 2023, reflecting rising costs and seasonal factors.

Total assets remained stable at EUR 29.1 trillion, with loans increasing by more than 1%, mainly driven by residential real estate and small to medium-sized enterprise financing. Non-performing loans (NPLs) declined slightly to EUR 370 billion, maintaining an NPL ratio of 1.8%. Stage 2 loans decreased to 9.1%, indicating asset quality improvement despite geopolitical risks.

Liquidity conditions improved further, with the liquidity coverage ratio (LCR) rising to 163.1%. Banks with an LCR above 140% account for over 80% of total. The net stable funding ratio (NSFR) increased to 126.9%, and the loans-to-deposits ratio decreased to 104.8%. Deposits from households and non-financial corporations grew by 1.8% and 3.6%, respectively, offsetting declines in other deposit categories.

The CRR3/CRD6 dashboard provides forward-looking projections of capital metrics from 2025 to 2030. Under fully-loaded CRR3 implementation, the average CET1 ratio is expected to slightly decrease to around 15.3%. The number of institutions affected by the output floor is projected to rise from 2 at December 2025 to 33, with no capital shortfalls before 2030. The total capital shortfall is expected to reach EUR 424.8 million initially, rising to EUR 12.7 billion upon full implementation, allowing banks time to adjust.

Note: The output floor projections are based on recalculated risk-weighted assets (RWAs) applying specific calibration factors. Transitional arrangements impact are not fully reflected in current data but will be addressed in future reports.

All calculations are based on overall capital requirements (OCR) and exclude Pillar 2 Guidance (P2G). Key indicators are available in the accompanying visualizations on the European Data Access Portal.