Euro area banks: Capital down, profits up in Q1 2026
The European Central Bank has published supervisory banking statistics for the first quarter of 2026, showing a decline in aggregate capital ratios but an increase in profitability. The Net Stable Funding Ratio reached its lowest level since 2021.
Capital ratios decline, profitability strengthens
In the first quarter of 2026, aggregate capital ratios for significant institutions supervised directly by the ECB showed a decline compared to both the previous quarter and the same period last year.
The Common Equity Tier 1 (CET1) ratio stood at 15.99 percent, a decrease from 16.26 percent in the prior quarter and 16.02 percent one year ago.
Similarly, the aggregate Tier 1 ratio fell to 17.51 percent from 17.76 percent, and the total capital ratio decreased to 20.11 percent from 20.40 percent.
Despite this, bank profitability strengthened, with the aggregate annualised return on equity (RoE) rising to 10.02 percent, up from 9.52 percent in the previous quarter and 9.85 percent a year ago.
The aggregate net interest margin also saw a slight increase to 1.54 percent from 1.52 percent.
Across euro area countries, CET1 ratios varied significantly, ranging from 13.67 percent in Spain to 23.44 percent in Lithuania, while RoE ranged from 6.02 percent in Belgium to 18.16 percent in Spain, highlighting diverse performance across the banking sector.
Asset quality stable, liquidity tightens
Asset quality remained broadly stable, with the non-performing loans (NPL) ratio (excluding cash balances) holding at 2.18 percent in the first quarter of 2026, unchanged from the previous quarter and down from 2.24 percent a year ago.
This stability occurred despite a €7.92 billion (2.2 percent) increase in the stock of NPLs, offset by a larger €424.48 billion (2.6 percent) rise in total loans and advances.
Liquidity conditions, however, tightened.
The aggregate liquidity coverage ratio (LCR) decreased to 153.93 percent from 158.60 percent in the previous quarter, driven by a €128 billion (4.0 percent) increase in net liquidity outflow.
Furthermore, the Net Stable Funding Ratio (NSFR) fell to 125.63 percent, marking its lowest level since the series began in 2021, down from 126.51 percent in the prior quarter.
New detailed breakdowns of the liquidity buffer are now included in the statistics.
Resilience tested by funding shifts
The mixed picture suggests euro area banks remain robust but face evolving challenges.
The decline in capital ratios, while minor, warrants attention alongside the lowest NSFR since 2021, indicating potential funding pressures.
While profitability is strong, supervisors will monitor liquidity trends closely for any signs of broader stress.