“EU/EEA banking sector remains stable amidst evolving geopolitical challenges,” said European Banking Authority in a press statement on Friday 21 March 2025. Photo: Shutterstock

“EU/EEA banking sector remains stable amidst evolving geopolitical challenges,” said European Banking Authority in a press statement on Friday 21 March 2025. Photo: Shutterstock

EU banks reported a 10.5% return on equity, a 1.1% rise in risk-weighted assets and €375bn in non-performing loans, while liquidity ratios remained well above regulatory requirements, the European Banking Authority reported for the fourth quarter of 2024.

The European Banking Authority announced that asset quality in European Union/European Economic Area (EU/EEA) banks remained stable in the fourth quarter of 2024, with non-performing loans (NPLs) decreasing by 1.1% quarter-on-quarter to €375bn. According to the EBA’s latest risk dashboard, on 21 March 2025, all loan segments saw a reduction in NPLs, except for commercial real estate (CRE) loans, which experienced a marginal increase. The report also revealed that stage 2 loans rose by 2.6%, reaching €1.57trn and accounting for 9.7% of total loans, up from 9.5% in Q3 2024.

Profits

The return on equity for EU/EEA banks stood at 10.5% for 2024, marking an increase of 10 basis points compared to 2023. However, this represented a decline from 11.1% in Q3 2024. The return on assets for 2024 reached 0.73%, up from 0.69% in 2023, though slightly below the 0.76% reported in Q3 2024. Despite a 1 basis point decline in the net interest margin to 1.66% on a quarterly basis, the report found that total income for banks benefited from a rise in net fee and commission income, which grew by 6.1% quarter-on-quarter and 9.6% year-on-year, offsetting the slowdown in net interest income.

Loans

The EBA observed a quarterly increase of over 1% in loans to households and non-financial corporations across nearly all jurisdictions. The report also noted a decline in cash balances, which fell by nearly 7% quarter-on-quarter. Sovereign exposures increased in most countries, rising by more than 3% at the EU/EEA level, from €3.52trn in Q2 2024 to €3.64trn in Q4 2024, an increase of €118bn.

Capital and risk indicators

The common equity tier 1 (CET1) ratio on a fully loaded basis remained stable at 16.0%, which the EBA stated was a sign of strong capitalisation in the banking sector. The report also found that risk-weighted assets increased by 1.1%, driven by higher credit and operational risks. The cost of risk held steady at 49bps, though the EBA noted that significant differences existed between countries.

Liquidity and funding conditions

The liquidity coverage ratio rose slightly to 163.4%, up from 161.5% in Q3 2024, while the net stable funding ratio remained virtually unchanged at 127.1%, compared to 127.2% in the previous quarter. Both ratios remained well above the regulatory minimum requirements.

The loan-to-deposit ratio for households and NFCs declined further to 104.9%, as deposit growth outpaced lending. Deposits from households and NFCs increased by 2.8% in the last quarter, contributing to improved liquidity conditions across the sector.

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