EU banks had €132bn of direct exposure to counterparties in the Middle East at the end of 2025, while capital and liquidity levels held steady despite rising global economic uncertainty.
Direct exposures to Middle East counterparties were less than 0.5% of total EU/EEA banks’ assets, with about €47bn in loans and advances to banks and other financial corporations and around €33bn to non-financial companies, the European Banking Authority (EBA) informed on Monday.
The EBA said renewed conflict in the region could feed through to banks indirectly via higher energy prices, inflation pressures, weaker global growth and supply-chain disruption, with knock-on effects “particularly” in energy-intensive sectors including transport, construction and parts of manufacturing.
Banks’ risk-weighted assets — a regulatory measure used to set capital requirements based on the riskiness of lending — rose by just over 1% in 2025 to €10.2 trillion in Q4, while the common equity tier 1 (CET1) ratio stayed at 16.3%.
Profitability was little changed, with return on equity at 10.4% in Q4 2025 compared with 10.5% a year earlier.
The net interest margin rose to 1.6% after falling to 1.58% in September 2025 from 1.66% in December 2024, while the cost-to-income ratio climbed to its highest level since March 2023.
Loans rise, bad loans stable
Total assets were stable at €29.1 trillion, while outstanding loans increased by more than 1% over the period, driven mainly by residential property-backed lending and financing to small and medium-sized enterprises, EBA said.
Non-performing loans — loans where borrowers have fallen behind on payments — dipped slightly to €370bn, keeping the non-performing loan ratio steady at 1.8%.
Liquidity indicators improved further, with the liquidity coverage ratio rising to 163.1% from 160.7% in Q3 2025 and the net stable funding ratio increasing to 126.9%.
Banks also reduced their loans-to-deposits ratio to 104.8% and increased household deposits by 1.8% and non-financial corporate deposits by 3.6% over the final quarter of 2025.
For the first time, the EBA Risk Dashboard was published alongside a new CRR3/CRD6 dashboard, which replaces the EBA’s former Basel 3 monitoring report.
Under a fully implemented CRR3 framework, the average CET1 ratio was projected to be about 15.3%, while the number of institutions bound by the “output floor” — a rule that limits how far banks can reduce capital requirements using internal risk models — was projected to rise from two at December 2025 to 33 under full implementation.
Using a static balance sheet assumption, no capital shortfalls were projected before 2030, with a total shortfall of €424.8m projected at that point and €12.7bn once the output floor is fully implemented, the EBA said.
