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Non-performing loans in Europe continue to decline, while deposits remain the main source of bank lending

NPLNon-performing loans (NPLs) in Europe are continuing to decline, and their share of total bank assets remained at 1.8% at the end of last year, according to the EBA Risk Dashboard. The study, which covers banks in the EU countries and the European Economic Area (EEA), reports EUR 370.5 billion in overdue loans – a 1.25% decline compared to the end of 2024. There has been an increase in the absolute value of NPLs in the corporate segment, primarily among small and medium-sized enterprises (see the chart).

According to the report, loans at risk of default have decreased for a third consecutive quarter – they are classified as Stage 2 loans and, as of the end of 2025, accounted for 9.1% of the total portfolio – a 0.02 percentage point decline in just three months. This indicates an improvement in asset quality ahead of any potential deterioration linked to geopolitical tensions and global supply chain disruptions, note experts at the European Banking Authority (EBA). Stable funding ratios have also increased, and banks continue to focus on deposits as a lending resource.

View EN_EBA_Risk Dashboard_Q4 on Beautiful.ai

The EBA’s overall conclusion confirms that the banking sector in Europe remains stable and well-capitalized, with sufficient liquidity and sound asset quality, even amid growing global economic uncertainty resulting from the renewed conflict in the Middle East. Direct exposures of the EU and EEA banks to counterparties in the conflict region amounted to EUR 132 billion at the end of 2025. The EBA warns that the direct impact may be limited, but the risk of spillover effects remains due to higher energy and fuel prices leading to higher inflation, as well as weaker global economic growth and disruptions in supply chains. These effects would be felt more strongly in energy-intensive sectors such as transportation, construction, and certain manufacturing segments.

The EBA report indicates a very slight increase in NPLs in the sectors of manufacturing, finance and insurance, and scientific and technical activities, and a slightly larger increase in information technology and communications.

In the remaining sectors, there was a decrease or no change in the last quarter of 2025 compared to September. The countries with the lowest levels of NPLs are Sweden, Liechtenstein, Lithuania, and Latvia, while those with the highest ones are Poland and Romania.

Read more news here.