European banks show credit risk stability amid persistent uncertainty

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European banks: benchmark study 2026

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The latest edition of its Financial reporting of European banks study based on expected credit losses (ECLs) disclosed in 2025 annual reports by leading European banks has been released. It found banks remain in a stable and resilient credit risk position, despite ongoing macroeconomic 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 showed less dispersion across banks than in 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 measured at amortised cost, which fell to 1.20% (vs 1.26% at YE 2024 and 1.57% at YE 2019).
  • Profitability remained moderately positive. Operating profit increased in most of the analysed banks (18 out of 26), although growth slowed compared with the previous year (8% vs 20%). The average share of ECL charges in operating profit remained stable at 13% (vs 12% at YE 2024).
  • The share of post-model adjustments or management overlays in total ECL allowances continued to decline, reaching 9% (vs 10% at YE 2024 and 12% at YE 2023), confirming a gradual normalisation since the pandemic and increasing confidence in model-driven risk 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 decline in ECL allowances and the lower use of overlays indicate that European banks are entering the next year with relatively sound credit portfolios and more mature credit risk models. This does not mean, however, that uncertainty has materially decreased. From the perspective of Poland and Central and Eastern Europe, geopolitical risk remains particularly important – including the war in Ukraine, trade tensions, pressure on supply chains and energy price volatility. These are the types of shocks that traditional ECL models, largely based on historical data and macroeconomic scenarios, may not always capture early enough. This is why further model enhancement must go hand in hand with robust management judgement, stress scenarios and transparent disclosures.” – says Małgorzata Pek, Partner at Forvis Mazars and leader of financial sector services across Poland and Central and Eastern Europe, covering both audit and advisory.

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.

Vincent Guillard
Leading the study, Partner at Forvis Mazars 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.

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