27 June 2025
The European Banking Authority (EBA) today released the Spring 2025 edition of its risk assessment report (RAR), which also analyses the funding plans of banks within the European Union/European Economic Area (EU/EEA). This report is supplemented by the Spring Risk Assessment Questionnaire (RAQ).
Key findings from the EBA risk assessment
•As of the end of 2024, banks maintained a robust capital base, while profits were at historically high levels. Increased uncertainty and financial market volatility could pose challenges for the sustainability of these.
•Liquidity levels remained substantial and significantly exceeded minimum standards, although potential risks may emerge due to heightened volatility
•EU/EEA banks’ credit risks could rise due to their exposure to sectors affected by tariffs or supply chain disruptions stemming from geopolitical events.
•Operational risks are on the rise, particularly in relation to cyber threats and a surge in fraudulent activities.
•The funding plans of EU/EEA banks indicate a focus on leveraging their deposit base and issuing secured debt to facilitate strong asset growth.
•A significant portion of EU/EEA banks’ exposures could be affected by both transitional and physical climate-related risks, although there is considerable variation among different banks and countries.
Geopolitical developments have widespread implications
- Geopolitical tensions and policy uncertainties remain significant. Geopolitical risk has been one of the major drivers of financial markets in recent quarters, inducing volatility.
- In an environment of rising tariffs, EU economies might be negatively affected. Tariffs may particularly affect sectors with significant export flows. For example, several EU/EEA banks have notable exposures to the manufacturing sectors.
- Geopolitical tensions may also affect financing needs and steer lending dynamics.
- Operational risks have increased drastically, not least related to rising geopolitical tensions, while policy changes may exacerbate climate risk-related challenges.
Uncertainties lead to potentially rising credit risk
- NPLs had risen to EUR 375bn (EUR 365bn in 2023), with the NPL ratio slightly increasing to 1.88%.
- Stage 2 loans reached unprecedented levels (9.7% of total loans), largely due to a rise for household loans.
- Despite worsening asset quality indicators, the lower interest rate environment and stabilisation of real estate markets have improved banks’ outlook despite the heightened geopolitical uncertainty.
Capital buffers and banks’ current profitability levels enhance resilience of the sector
- The CET1 ratio stood at 16.1%, with CET1 capital matching the 5% increase in RWA in 2024.
- EU/EEA banks’ profits grew by approximately 9% in 2024, recording a RoE of 10.5% in 2024 (10.4% in 2023).
- Rising pressure on net interest income, as lower interest rates feed in banks’ margins. Yet, banks have successfully managed to increase their fee and trading income.
- Funding plans show that banks expect interest rates on loans and deposits to decrease this year.
- Robust capital buffers and high profitability helped banks to increase their payouts, reaching EUR 92bn in 2024 (payout ratio 51%).
Asset growth expected to continue while NFBI links remain strong
- Banks boosted their assets by 3.2%, reaching a total of EUR 28.2tn, driven by a significant increase in outstanding loans and advances (supported by higher demand due to lower interest rates) and debt securities.
- EU/EEA banks' three-year funding plans project a 1.7% increase in total assets for 2025, and higher growth rates expected in 2026 and 2027.
- Interconnectedness of EU/EEA banks with NBFIs remains a possible major channel of contagion in market turmoil, with exposures amounting to 10.1% of total consolidated bank assets.
Banks target secured debt and client deposits to fund asset growth
- In 2024, EU/EEA banks' liabilities rose by about 3% to EUR 26.2 trillion, with debt securities making up 20.3% of total liabilities by Q4. Household and NFC deposits made 31.1% and 17.2%, of total liabilities, respectively.
- Yearly issuance volumes are projected to increase significantly over the next three years, with banks planning strong growth in secured debt issuances after low volumes in 2024 and reinforcing their client deposits.
- However, these positive projections may encounter challenges due to increased market volatility.
Buffers on liquidity remain ample, yet with some idiosyncratic risks
- Key liquidity ratios reflected a strong position among EU/EEA banks, with the Liquidity Coverage Ratio standing at 163.4% and the Net Stable Funding Ratio at 127.1%
- The asset encumbrance ratio further declined by 50 basis points year-on-year, reaching 24.1%.
- Composition of liquidity buffers was adjusted, as banks substituted central bank reserves with sovereign debt, covered bonds, and Level 2 asset.
- Uncertain market environment and central banks’ tightening of monetary policies may challenge some banks to maintain high liquidity positions, including in foreign currencies.
Operational risks pose challenges for the EU/EEA banking sector
- Operational risks remain high. They are affected by digitalisation, technological progress, and increased geopolitical tensions.
- Fraud, reputational issues, and risks associated with financial crime (including AML concerns), digitalisation and technological advancements, along with related cyber risks, are significant contributors to operational risk.
- The number of successful cyber attacks has further increased while the risk-weighted assets associated with operational risk have increased, highlighting its importance in the overall risk landscape of banks.
Documents
Risk Assessment Report - Spring 2025 [digital]
Risk reports and other thematic work
RAQ Booklet Spring 2025 - Visualisation tool
Press contacts
Franca Rosa Congiu, press@eba.europa.eu