European banks show credit risk stability amid persistent uncertainty
Key findings:
- No general deterioration in credit risk was observed in 2025. Key indicators, including coverage ratios and post-model adjustments or management overlays, continued to decline slightly and show reduced dispersion compared to previous years.
- Gross credit exposures increased by 3.0%, mainly in Stage 1 assets, while ECL allowances declined by 1.9%. This dynamic contributed to a lower average coverage ratio for loans at an amortised cost of 1.20% (vs 1.26% in YE 2024 and 1.57% in YE 2019).
- Profitability trends remain moderately positive as operating profit increased for most banks (18 of 26), although growth slowed compared to the previous year (8% vs 20%). The average ECL charge in operating profit remains quite stable at 13% (vs 12% in YE 2024).
- The share of post-model adjustments or management overlays in total ECL allowances continued to decrease to 9% (vs 10% in YE 2024 and 12% in YE 2023), confirming a gradual normalisation since the pandemic peak and increased reliance on model-driven estimates.
Using data published in year-end reports by 26 European banking groups before 1 April 2026, the study found while key credit risk indicators continued to decline, both their levels and dispersion across banks appear to be stabilising. This suggests that European banks remain well positioned to face future economic shocks.
As operating profit increased, the average ECL charge also grew by 14%, with ECL representing around 13% of operating profit (up from 12% in 2024). Credit costs therefore remain manageable but have started to rise slightly. However, changes in ECL charges were mixed, with 16 banks reporting an increase and 10 banks a decrease, highlighting varied risk dynamics across the continent.
The study also highlights a reallocation of credit exposures across stages, with growth driven by Stage 1 assets (new origination and migrations from other stages). At the same time, coverage ratios declined for Stage 1 but increased slightly for Stages 2 and 3, reflecting differentiated provisioning dynamics across stages.
The use of post-model adjustments and overlays continued to decline. Overlays represented 9% of total ECL allowances in 2025, down from 10% in 2024 and the lowest level since their introduction during the Covid-19 pandemic. This reflects a greater reliance on model-derived credit risk estimates, although banks continue to factor in macroeconomic, trade-related and climate-related uncertainties.
Leading the study, Partner Vincent Guillard said: “Our study indicates that European banks remain in an overall stable position from a credit risk perspective. Balance sheets reflect a shift towards Stage 1 exposures and a continued decrease in reliance on management overlays. While credit costs have slightly increased on average, trends remain diverse across institutions. In this context, persistent macroeconomic uncertainty, including trade tensions, continue to be reflected in forward-looking assumptions and shape cautious forecasting.”
Overall, forward-looking macroeconomic assumptions remain diverse across banks. While projections are broadly in line with those of the European Central Bank and the Bank of England, variations remain, and a majority of banks continue to assign significant weight to downside scenarios.
- ENDS -
About the study
This study is based on information disclosed in 26 European banks’ annual reports published by 1 April 2026, without taking into account any press releases, investor-oriented presentations or similar publications. The detailed methodology is explained fully in the report.
Press contact
Rosa Mejia Banks, Group PR and Content Officer
Rosa.Mejia-Banks@mazars.co.uk / +44 (0) 20 7063 4934