Bad loans in emerging Europe remain close to historic lows, highlighting resilience, but pockets of risk are emerging

• NPL volumes in CESEE down 3.5 per cent year on year in Q2 2025, reaching €28 billion
• Overall coverage ratio dips to 63.3 per cent, but remains above pre pandemic norms
• Pockets of risk in commercial real estate, SME and retail sectors, with bank NBFI linkages flagged as a vulnerability

Non-performing loans (NPLs) in central, eastern and south-eastern Europe (CESEE) remained at historic lows in Q2 2025 despite ongoing macroeconomic and geopolitical pressures, according to the latest edition of the EBRD’s NPL Monitor, which was published today.

NPL volumes in the region fell by 3.5 per cent year on year to stand at €28 billion in that quarter, helped by borrowers’ solid fundamentals and active balance-sheet management.

The average NPL ratio in the region remained broadly stable at 1.93 per cent, while the overall coverage ratio dipped slightly due to softer provisioning in some markets but remained comfortably above pre-pandemic levels at 63.3 per cent.

The headline figures suggest that the region remains resilient in the face of continuing geopolitical tensions and macroeconomic pressures. Low unemployment and borrowers’ strong liquidity have helped to improve credit quality, limiting numbers of new NPLs.

At the same time, national trends are diverging amid variation in macro pressures, sector-level exposure and policy responses.

The report notes that there are pockets of risk in sectors such as commercial real estate, small and medium-sized enterprises (SMEs) and retail, with affordability and refinancing hampered by the fact that interest rates remain high. The report also warns that the interconnectedness of banks and non-bank financial institutions (NBFIs) is another vulnerability and could amplify stress in adverse scenarios.

Activity in the NPL market remains robust, with secondary liquidity improving but uneven. Greece continues to lead the way when it comes to secondary sales, while Türkiye has seen a rise in primary deal flows. In contrast, smaller CESEE markets have seen limited volumes, dominated by small retail portfolio disposals to local asset managers.

The NPL Monitor urges supervisors to maintain their proactive surveillance of sectoral risk pockets, intensify monitoring of bank-NBFI linkages, and act early if numbers of Stage 2 loans increase. Timely intervention and robust provisioning remain critical in order to safeguard financial stability, the report concludes.

The EBRD’s NPL Monitor is a semi-annual publication under the Vienna Initiative’s NPL Initiative, covering 17 CESEE countries and selected non-CESEE markets. The NPL Monitor is published on the Vienna Initiative’s website, alongside partner publications prepared by the International Monetary Fund (the CESEE Deleveraging and Credit Monitor) and the European Investment Bank (the CESEE Bank Lending Survey), which are also being issued today.

The Vienna Initiative was established in 2009 during the global financial crisis with the aim of safeguarding the financial stability of emerging Europe by bringing together banks, governments, regulators and international financial institutions.