The volume of non-performing loans (NPL) in Central, Eastern, and Southeastern Europe (CESEE) decreased by 3.5% year-on-year in the second quarter of 2025, according to the latest report of Vienna Initiative. Thus, overdue bank loans in the region reached EUR 28 billion, according to the report by the organization, which is a project of the European Bank for Reconstruction and Development (EBRD). Despite ongoing macroeconomic and geopolitical challenges, the NPL level in the region remains at historically low levels, experts note in the report (see the chart).
The decline in the NPL volume is due to borrowers’ stable financial indicators and active management of bank balance sheets. Their average share in the region remains relatively stable at 1.93%, while their overall coverage ratio has declined slightly to 63.3%, but is still above pre-pandemic levels.
The report highlights that the region is demonstrating resilience despite geopolitical tensions and macroeconomic difficulties. Low unemployment and good liquidity among households and businesses are limiting the number of new non-performing loans. At the same time, however, differences are observed between individual countries due to varying macroeconomic conditions, sectoral exposure, and differing policies.
Several sectors have been identified by experts as risky: commercial real estate, small and medium-sized enterprises (SMEs), and retail, where high interest rates are hampering refinancing and access to loans. Furthermore, the interconnections between banks and non-bank financial institutions are cited as a potential vulnerability that could amplify stress under adverse scenarios.
The NPL market remains active, with secondary liquidity improving, although unevenly. Greece continues to lead in terms of secondary sales, while Turkey reports growth in primary transactions. In the smaller CESEE markets, volume is limited and dominated by small portfolios of retail loans sold to local asset managers.
In their report experts from the Vienna Initiative recommend that supervisory authorities maintain proactive oversight of high-risk sectors, strengthen monitoring of the links between banks and non-bank lenders, and take early action when the share of Stage 2 loans increases. These are loans that aren’t overdue by now, but are classified as risky.
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