- Non-binding Pillar 2 guidance for 2026 decreased from 1.3% to 1.1%
- Qualitative measures primarily target credit risk, governance and capital adequacy, with intensified supervisory follow-up on remediation by banks
- Supervisory priorities for 2026-28 focus on banks’ resilience to geopolitical risks and macro-financial uncertainties, as well as on their operational resilience and IT capabilities
The European Central Bank (ECB) today published the results of its Supervisory Review and Evaluation Process (SREP) for 2025 and its supervisory priorities for 2026-28. The assessment covers 105 banks under European banking supervision that are directly supervised by the ECB. It provides a review of their capital, liquidity, profitability, governance and risk management.
Overall, banks maintained robust capital and liquidity positions and strong profitability in the second quarter of 2025. The weighted average Common Equity Tier 1 (CET1), the highest quality of a bank’s capital, stood at 16.1% of banks’ risk-weighted assets. The leverage ratio stood at 5.9%. The total capital ratio was 20.2%.
Similarly, liquidity buffers remained well above the 100% minimum requirement, with the aggregate liquidity coverage ratio (LCR) at 158% in the second quarter of 2025. Banks retained good access to retail and wholesale funding, with an average net stable funding ratio (NSFR) broadly stable at 127%.
Profitability continued to be strong, supported by net interest income and net fees and commissions. The aggregated annualised return on equity stood at 9.5% in the fourth quarter of 2024 and improved further to 10.1% in the second quarter of 2025.
Asset quality across the sector remained robust, with the non-performing loan (NPL) ratio at 1.9% in the second quarter of 2025. NPL ratios for commercial real estate loans and loans to small and medium-sized enterprises remain above average (at 4.6% and 4.9% respectively) while some countries with historically low NPL ratios are now experiencing a moderate increase in NPL stocks.
Stage 2 loans and advances, that is loans for which credit risk has significantly increased since initial recognition, marginally increased from 9.5% in the second quarter of 2024 to 9.6% in the second quarter of 2025.
The currently good level of resilience in the euro area banking sector is the result of several factors. These include effective regulation, sound supervision and improvements in banks’ risk management, but also extraordinary fiscal and monetary responses to recent macroeconomic shocks.