Bank RoE rises to 11.3 percent as capital headroom holds at 430bp
European Union banks maintained strong capital and liquidity buffers while raising return on equity to 11.3 percent in the second quarter of 2026, according to the European Banking Authority's Risk Dashboard published on September 25.
Margins widen as capital cushion holds
EU and EEA banks maintained solid balance sheets in the second quarter of 2026.
The Common Equity Tier 1 ratio reached 16.1 percent, down slightly from 16.2 percent due to growth in risk-weighted assets, leaving a 430bp headroom above regulatory minimums.
Liquidity buffers remained elevated, with the Liquidity Coverage Ratio at 158.5 percent and the Net Stable Funding Ratio at 125.7 percent.
Profitability strengthened across the sector: return on equity rose to 11.3 percent from 10.7 percent a year earlier, supported by wider net interest margins of 1.63 percent and stable operating costs that pushed the cost-to-income ratio down to 51.5 percent from 52.5 percent.
Credit expands while bad loans decline
Lending expanded across the bloc, with household loans increasing 5.2 percent year-on-year and corporate lending growing 6.3 percent, though dynamics varied across countries.
Asset quality held steady as non-performing loans stood at 1.8 percent and Stage 2 loans declined to 8.9 percent.
Direct exposure to the IT sector was limited to 1.9 percent of total client lending.
However, the EBA warned that geopolitical tensions, high asset valuations, and AI financing concentration pose emerging risks.
Comfortable buffers mask uneven ground
The headline figures show a banking sector in peak health, yet this strength may be deceptive.
National divergences remain wide, while rapid AI financing concentration builds unmeasured risk.
Current capital buffers look solid, but impending macro shocks will test their true resilience.