EU/EEA banks maintain strong capital and profitability in second-quarter risk review

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EU/EEA banks: strong capital in Q2

Highlights

EU/EEA banks' Common Equity Tier 1 ratio stands at 16.1% with 430 basis points headroom over requirements, and liquidity ratios remain robust in Q2 2026.
Loans to households rise 5.2% year on year and lending to non-financial corporations increases 6.3%, while the non-performing loan ratio remains low at 1.8%.
Return on equity reaches 11.3%, up from 10.7% a year earlier, driven by higher net interest income and stable cost-to-income ratio at 51.5%.

Second-quarter dashboard highlights capital and liquidity resilience

As reported by the European Banking Authority, its Risk Dashboard for the second quarter of 2026 shows EU/EEA banks continue to operate from a position of strength. The update is based on supervisory reporting data and points to robust buffers, stable funding conditions and sustained profitability across the sector.

The sector’s Common Equity Tier 1 ratio stands at 16.1%, slightly down from 16.2% in the previous quarter because of higher risk-weighted assets. Even so, banks retain around 430 basis points of headroom above regulatory capital requirements, unchanged from a year earlier, giving them substantial shock-absorption capacity.

Liquidity metrics also remain comfortably above minimum thresholds. The Liquidity Coverage Ratio is 158.5% and the Net Stable Funding Ratio is 125.7%, both stable quarter on quarter, while high-quality liquid assets continue to shift toward sovereign bonds, which rose 8.7% in the first half of 2026, alongside a decline in cash balances.

Lending growth and earnings support sector outlook

Credit expansion continues in both household and corporate segments, although the pattern differs by country. Loans to households rise 5.2% year on year and 1.7% quarter on quarter, while lending to non-financial corporations increases 6.3% year on year and 1.7% from the previous quarter.

Asset quality indicators remain firm, with the non-performing loan ratio at 1.8% and the share of Stage 2 loans declining to 8.9% of total loans. The EBA says conditions still vary across countries, sectors and portfolios, but direct bank exposure to the IT sector represents only 4% of corporate lending, or about 1.9% of total client lending, with no signs of weakening credit quality.

Profitability also improves, with return on equity at 11.3%, up from 10.7% a year earlier. Higher net interest income, supported by strong loan growth and a wider net interest margin of 1.63% versus 1.58% a year earlier, drives much of the gain, while fee and commission income also contributes and broadly stable costs help lower the cost-to-income ratio to 51.5% from 52.5%.

Funding conditions remain favourable despite brief episodes of market volatility. Total deposits increase 1.6%, led mainly by a 2.3% rise in household deposits, reinforcing a stable funding base for the region’s banks.

In our previous coverage of euro zone lending and money-supply trends, we noted that credit growth remained resilient even as business lending eased slightly, while household borrowing held near its strongest pace since early 2023. The update also highlighted a modest uptick in the M3 money supply, pointing to gradually improving liquidity conditions despite uneven momentum across borrower segments.

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