The European Banking Authority reports that EU/EEA banks are resilient with strong capital, liquidity, and asset quality, despite rising global geopolitical tensions and increased exposures to the Middle East.
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 rising 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 EU/EEA bank assets, escalating tensions could lead to second-round effects such as higher energy prices, inflation, weaker economic growth, and supply chain disruptions, especially in 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%, and return on equity was steady at 10.4%. The net interest margin (NIM) increased to 1.6%, after declining from 1.66% in December 2024 to 1.58% in September 2025. 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 over 1%, mainly driven by residential real estate and small and medium-sized enterprise financing. Non-performing loans (NPLs) declined slightly to EUR 370 billion, maintaining a NPL ratio of 1.8%. Stage 2 loans decreased to 9.1%, indicating an improvement in asset quality ahead of potential geopolitical and supply chain impacts.
Liquidity conditions strengthened, with the liquidity coverage ratio (LCR) rising to 163.1%, and the net stable funding ratio (NSFR) increasing to 126.9%. The loans-to-deposit ratio decreased to 104.8%. Banks focused on deposit funding, with household deposits increasing by 1.8% and non-financial corporate deposits by 3.6% in the last quarter, offsetting declines in other deposit sources.
The new CRR3/CRD6 dashboard, available on the European Data Access Portal (EDAP), provides projections of key 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 will increase from 2 in December 2025 to 33, with no capital shortfalls projected before 2030. The total capital shortfall at that time is estimated at EUR 424.8 million, rising to EUR 12.7 billion once the output floor is fully phased in, providing banks ample adjustment time.
Note: The output floor projections are based on recalculated risk-weighted assets (RWAs) applying specific calibration factors. Transitional arrangements and credit risk impacts are not fully reflected in current data but will be addressed in future updates.
All calculations are based on overall capital requirements (OCR) and exclude Pillar 2 Guidance (P2G).
Key indicators are visualized in the dashboard, including exposures to Middle East counterparties, risk-weighted assets, net interest income drivers, and IFRS 9 Stage 2 loans.
