Coverage: Q3 2025 · Information to 19 December 2025
Originally Published as TGB Premium Intelligence
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TGB Quarterly Regional Banking Monitor · 19 December 2025
European banks ended the third quarter of 2025 with stable capital and slightly softer returns, as euro area significant institutions held a 16.10% CET1 ratio and earned 9.88% on equity while the Bank of England cut Bank Rate to 3.75% in December and the ECB held at 2.00%.
The desk view
European banking entered the last quarter of 2025 in a strong but plateauing position. Euro area significant institutions held a CET1 ratio of 16.10% in Q3 2025, and their return on equity eased to 9.88% from 10.11% in the previous quarter. Asset quality was stable, with the EU/EEA NPL ratio at 1.8% and the cost of risk at 0.47%, the lowest since Q3 2023. Policy rates moved in different directions: the ECB and the SNB held through the autumn and the CNB held in December, while the Bank of England, Norges Bank, the Riksbank and the CBRT cut between July and December. The supervisory message turned towards calibration, with the Bank of England lowering its Tier 1 capital benchmark to around 13% and the ECB proposing to simplify EU capital rules. The main pressure points are flat core revenues, credit risk in SME and consumer lending, and UK motor finance redress.
The regional picture
The ECB kept its deposit facility rate at 2.00% at its meetings on 11 September, 30 October and 18 December 2025. The Bank of England's Monetary Policy Committee cut Bank Rate to 4% at its meeting ending on 6 August 2025 by a 5–4 vote, held at 4% in September by 7–2 and in November by 5–4, and cut to 3.75% at its meeting ending on 17 December by 5–4. The Swiss National Bank left its policy rate at 0% on 25 September and 11 December 2025.
Norges Bank reduced its policy rate from 4.25% to 4% at its meeting on 17 September 2025 and held it there on 17 December. The Riksbank cut its policy rate by 0.25 percentage points to 1.75% in a decision announced on 23 September 2025, and left it unchanged in the decision notified on 18 December. The CNB kept its two-week repo rate at 3.50% on 18 December 2025, and the MNB kept the Hungarian base rate at 6.50% on 16 December. The CBRT cut in larger steps, taking its one-week repo rate from 46% to 43% on 24 July and to 40.5% on 11 September, and from 39.5% to 38% on 11 December 2025.
Inflation readings help explain the split. UK CPI inflation was 3.2% in November 2025, Norwegian inflation 3% and Hungarian inflation 3.8%, while Swiss inflation was 0.0%. The Eurosystem's December 2025 staff projections put euro area headline inflation at 2.1% in 2025 and 1.9% in 2026, and revised growth up to 1.4% in 2025.
Policy rates after the last decision on or before 18 December 2025
| Central bank | Latest decision | Policy rate | Change at that decision |
|---|---|---|---|
| ECB (deposit facility rate) | 18 December 2025 | 2.00% | Unchanged |
| Bank of England | 17 December 2025 | 3.75% | Cut by 0.25 percentage points |
| Swiss National Bank | 11 December 2025 | 0% | Unchanged |
| Sveriges Riksbank | 18 December 2025 | 1.75% | Unchanged |
| Norges Bank | 17 December 2025 | 4% | Unchanged |
| Czech National Bank (two-week repo) | 18 December 2025 | 3.50% | Unchanged |
| Magyar Nemzeti Bank (base rate) | 16 December 2025 | 6.50% | Unchanged |
| CBRT (one-week repo) | 11 December 2025 | 38% | Cut from 39.5% |
Source: European Central Bank, Monetary policy decisions (18 December 2025), 18 December 2025; Bank of England, Bank Rate reduced to 3.75% - December 2025 (Monetary Policy Summary), 18 December 2025; Swiss National Bank, Monetary policy assessment of 11 December 2025, 11 December 2025; Sveriges Riksbank, Monetary policy decision December 2025: policy rate decision, 18 December 2025; Norges Bank, Rate decision December 2025, 18 December 2025; Czech National Bank, CNB Board decisions, 18 December 2025, 18 December 2025; Magyar Nemzeti Bank, Press release on the Monetary Council meeting of 16 December 2025, 16 December 2025; Central Bank of the Republic of Türkiye, Press Release on Interest Rates (2025-61), 11 December 2025.
Euro area: capital stable, returns edging lower
The ECB's supervisory statistics show capital broadly unchanged in the third quarter of 2025. The aggregate CET1 ratio of significant institutions was 16.10%, slightly lower than in the previous quarter, and the total capital ratio was 20.24%. National averages ranged from 13.28% in Spain to 23.12% in Lithuania. The aggregate return on equity was 9.88% in Q3 2025, down from 10.11% in the previous quarter and 10.09% a year earlier, while the net interest margin was basically unchanged. Profitability remained uneven: return on equity ranged from 6.82% in France to 16.66% in Lithuania.
Asset quality was steady but not improving. The NPL ratio, excluding cash balances, was 2.22% in Q3 2025, unchanged on the quarter and down from 2.31% a year earlier, although the stock of non-performing loans rose by EUR 1.49 billion. Stage 2 loans fell to 9.49% of total loans from 9.59%. The weak spots are concentrated: the NPL ratio was 4.88% for SME loans, 4.58% for loans secured on commercial property and 5.51% for consumer credit. The liquidity coverage ratio eased to 156.73% from 157.88%.
The wider EU/EEA sample tells the same story. The EBA's Risk Dashboard, based on around 160 banks covering more than 80% of sector assets, put the CET1 ratio at 16.3% in Q3 2025 with risk-weighted assets unchanged at EUR 10.1 trillion. Return on equity was 10.7%, the net interest margin decreased slightly to 1.58% and the cost-to-income ratio fell to 52.3%. Total assets held at EUR 29.1 trillion and loans to households and non-financial corporations rose just 0.2% in the quarter.
EU/EEA banks: EBA risk indicators
| Indicator | Sep 2024 | Jun 2025 | Sep 2025 |
|---|---|---|---|
| CET1 ratio | 16.0% | 16.3% | 16.3% |
| NPL ratio | 1.9% | 1.8% | 1.8% |
| Return on equity | 11.0% | 10.7% | 10.7% |
| Net interest margin | 1.65% | 1.58% | 1.58% |
| Cost of risk | 0.50% | 0.48% | 0.47% |
| Cost-to-income ratio | 51.5% | 52.4% | 52.3% |
| Liquidity coverage ratio | 161.6% | 161.7% | 160.7% |
Source: European Banking Authority, Risk Dashboard Q3 2025, 17 December 2025.
Over the year to September 2025 the return on equity fell from 11.0% to 10.7% as the net interest margin narrowed from 1.65% to 1.58%, while the NPL ratio edged down.
Euro area: supervisors set requirements for 2026
The 2025 EU-wide stress test, published on 1 August, covered 64 banks from 17 countries and 75% of EU banking assets. Under the adverse scenario banks absorbed losses of EUR 547 billion and their CET1 ratio fell by 370 basis points, to 12% at the end of the scenario. The ECB used those results in its 2025 SREP, which covered 105 directly supervised banks, and said they showed higher losses but lower capital depletion than in 2023, thanks to higher profits. Overall CET1 requirements and guidance for 2026 stayed broadly stable at 11.2% and Pillar 2 requirements at 1.2%, while Pillar 2 guidance fell from 1.3% to 1.1%. The average SREP score improved to 2.5 from 2.6, but a quarter of banks remained in the weakest categories. Supervisory priorities for 2026-28 focus on resilience to geopolitical risks and macro-financial uncertainties, and on operational resilience and IT capabilities.
The aggregate CET1 ratio of 16.10% in Q3 2025 was 4.9 percentage points above the 11.2% overall requirement and guidance for 2026.
Euro area: earnings, credit and valuations
The ECB's November 2025 Financial Stability Review said headline profitability remained strong but the growth of core revenues had come to a halt. The trailing return on equity of significant institutions rose to 9.8% in Q2 2025 from 9.6% in Q4 2024, but core revenues were flat in Q2 2025 as lower net interest income offset growth in fees. Loan loss provisions had hovered around 30 basis points of loans over recent quarters. Price-to-book and price/earnings ratios of large listed banks reached their highest levels since before the 2008-09 crisis, yet around one-quarter of large listed banks still traded below book value in mid-November.
Credit demand recovered only slowly. In the October 2025 bank lending survey, banks reported a net tightening of credit standards for firms of 4% in Q3 2025, unchanged standards for housing loans and a 5% net tightening for consumer credit. Net demand for loans to firms rose by 2%, while net demand for housing loans rose by 28%. Annual growth of adjusted loans to the private sector reached 3.0% in October 2025, with household loans up 2.8% and loans to non-financial corporations up 2.9%.
Euro area significant institutions by country, Q3 2025
| Country | CET1 ratio | NPL ratio | Return on equity | Net interest margin | Cost of risk |
|---|---|---|---|---|---|
| Germany | 17.38% | 1.81% | 6.92% | 1.05% | 0.47% |
| France | 15.97% | 2.50% | 6.82% | 0.91% | 0.46% |
| Spain | 13.28% | 2.85% | 14.70% | 2.62% | 0.93% |
| Italy | 15.84% | 2.42% | 14.12% | 1.99% | 0.46% |
| Netherlands | 16.38% | 1.47% | 10.61% | 1.42% | 0.13% |
| Belgium | 17.92% | 1.52% | 10.16% | 1.42% | 0.12% |
| Austria | 17.44% | 2.72% | 9.85% | 2.36% | 0.55% |
| Ireland | 18.05% | 1.61% | 10.13% | 1.75% | 0.25% |
| Greece | 16.09% | 3.06% | 12.45% | 2.80% | 0.53% |
| Portugal | 17.89% | 2.38% | 16.00% | 2.69% | 0.11% |
| Finland | 18.00% | 1.32% | 13.15% | 1.47% | 0.06% |
France had the lowest return on equity of the euro area countries, 6.82%, and Germany earned 6.92%; their net interest margins were 0.91% and 1.05%. Spanish banks had the lowest CET1 ratio, 13.28%, alongside a 14.70% return on equity and a 0.93% cost of risk.
Large banks: third-quarter results
UniCredit reported 3Q25 net profit of €2.6 billion and a RoTE of 19.1%, and its CET1 ratio stood at 14.8% after absorbing 117 basis points from the equity consolidation of a 26% stake in Commerzbank. BNP Paribas reported net income of €3,044m, up 6.1%, with cost of risk of 39bp and a CET1 ratio of 12.5%. HSBC's profit before tax fell by $1.2bn to $7.3bn after $1.4bn of legal provisions, and its RoTE was 12.3%, or 16.4% excluding notable items. NatWest Group's profit attributable to ordinary shareholders was £1,598 million in Q3 2025, with a RoTE of 22.3% and a CET1 ratio of 14.2%, and it raised its 2025 guidance to a RoTE of greater than 18.0%.
Selected European banks: results to 30 September 2025
| Bank | Period | Net profit | Return on tangible equity | CET1 ratio |
|---|---|---|---|---|
| HSBC | 3Q25 | $5.5bn (after tax) | 12.3% | 14.5% |
| BNP Paribas | 3Q25 | €3,044m | 11.4% (at 30 September 2025) | 12.5% |
| Santander | 3Q25 | €3,504m | 16.1% (9M 2025) | 13.1% |
| UniCredit | 3Q25 | €2.6bn | 19.1% | 14.8% |
| Deutsche Bank | 3Q25 | €1.8bn | 10.7% | 14.5% |
| NatWest Group | 3Q25 | £1,598m | 22.3% | 14.2% |
| BBVA | 9M 2025 | €7.98bn | 19.7% | 13.42% |
| Intesa Sanpaolo | 9M 2025 | €7,588m | Not stated | 13.9% |
Source: HSBC Holdings plc, Earnings Release 3Q25, 28 October 2025; BNP Paribas, Third quarter 2025 results (press release), 28 October 2025; Banco Santander, Q3 2025 Santander results (press release), 29 October 2025; UniCredit, UniCredit: 3Q25 and 9M25 Group results, 22 October 2025; Deutsche Bank, Deutsche Bank reports record profit before tax of € 7.7 billion in the first nine months of 2025, 29 October 2025; NatWest Group plc, Q3 2025 Interim Management Statement, 24 October 2025; BBVA, Earnings: BBVA posts record profit of nearly €8 billion through September, 30 October 2025; Intesa Sanpaolo, Intesa Sanpaolo: consolidated results as at 30 September 2025, 31 October 2025.
Consolidation also shaped capital planning. After its offer for Banco Sabadell ended, BBVA accelerated shareholder remuneration, including a buyback of around €1 billion and an interim dividend of €0.32 per share.
United Kingdom: easing rates, lower capital benchmark
The Bank of England's December decision was a close call. The MPC cut Bank Rate to 3.75% by 5–4, with four members preferring to hold at 4%. CPI inflation had eased to 3.2% in November from 3.8% in September. The Committee said Bank Rate had been reduced by 150 basis points since August 2024 and was likely to continue on a gradual downward path, but that further easing would become a closer call.
The Financial Policy Committee's December 2025 Financial Stability Report judged the appropriate system-wide Tier 1 capital benchmark to be around 13% of risk-weighted assets, equivalent to a CET1 ratio of around 11% and 1 percentage point lower than its previous benchmark of 14%. The FPC held the countercyclical capital buffer at its neutral rate of 2%. In the 2025 Bank Capital Stress Test the aggregate CET1 ratio fell from 14.5% to a low point of 11.0%, and no bank was required to strengthen its capital. Basel 3.1 is to take effect on 1 January 2027, allowing the PRA to reduce Pillar 2A requirements by around ½ percentage point.
Major UK banks reported an underlying RoTE of 14.7% in Q3 2025 and returned £8.6 billion to shareholders in the quarter. The open issue is motor finance: the FCA estimates the cost of its proposed redress scheme at £11 billion, with banks accounting for 51%.
Major UK banks: resilience indicators
| Indicator | Latest | July 2025 FSR |
|---|---|---|
| CET1 ratio, major UK banks | 14.4% (Q3) | 14.4% (Q1) |
| CET1 ratio, small and medium-sized banks | 18.1% (Q3) | 18.3% (Q1) |
| Liquidity coverage ratio, major banks | 147% (October) | 152% (May) |
| Stage 2 loans, major banks | 9.4% (Q3) | 9.6% (Q1) |
| Provisions as a share of lending | 0.89% (Q3) | 0.92% (Q1) |
Source: Bank of England, Financial Stability Report - December 2025, 2 December 2025.
Switzerland and the Nordics
The SNB kept its policy rate at 0% on 11 December 2025, and its forecast puts average inflation at 0.2% in 2025 and 0.3% in 2026. The main banking issue was regulatory. On 26 September 2025 the Federal Council opened a consultation, running to 9 January 2026, on requiring systemically important banks to fully deduct participations in foreign subsidiaries from CET1 capital, phased in from 65% to 100% over seven years. It said only UBS would be significantly affected.
The Riksbank's November Financial Stability Report found the major Swedish banks profitable and meeting capital and liquidity requirements by a good margin, although lower market rates had slightly reduced net interest income. It said some consumer credit banks had relatively small margins above their capital requirements. The Riksbank expects its policy rate to remain at 1.75% for some time to come, while Norges Bank expects to reduce its rate further in the course of the coming year.
Central and eastern Europe and Türkiye
The CNB kept its two-week repo rate at 3.50% in December, and the MNB held its base rate at 6.50% with November inflation at 3.8% and core inflation at 4.1%. The MNB noted that the Polish central bank had cut its policy rate by 25 basis points. The CBRT cut its one-week repo rate by a cumulative 800 basis points between 24 July and 11 December 2025, from 46% to 38%, while saying that its tight stance will be maintained until price stability is achieved.
Regulation: simplification moves up the agenda
On 11 December 2025 the ECB Governing Council endorsed recommendations to merge capital buffers into a non-releasable and a releasable buffer, and to cut the leverage ratio framework from four elements to two, a 3% minimum and a single buffer. It also proposed a materially simpler regime for smaller banks and will submit the proposals to the European Commission, whose report on the banking system is due in 2026. Together with the FPC's lower benchmark, this marks a shift from building capital to making the framework simpler.
Cross-country comparison
Euro area, EU/EEA, UK and Sweden: rates and banking indicators
| Jurisdiction | Policy rate (latest) | Capital | Asset quality | Profitability |
|---|---|---|---|---|
| Euro area | 2.00% | CET1 16.10% (Q3 2025) | NPL 2.22% (Q3 2025) | RoE 9.88% (Q3 2025) |
| EU/EEA (EBA sample) | Not applicable | CET1 16.3% (Q3 2025) | NPL 1.8% (Q3 2025) | RoE 10.7% (Q3 2025) |
| United Kingdom | 3.75% | Major banks CET1 14.4% (Q3) | Stage 2 loans 9.4% (Q3) | Underlying RoTE 14.7% (Q3 2025) |
| Sweden | 1.75% | Major banks meet requirements by a good margin | Low loan losses | Major banks profitable |
Source: European Central Bank, Monetary policy decisions (18 December 2025), 18 December 2025; European Central Bank (Banking Supervision), ECB publishes supervisory banking statistics on significant institutions for the third quarter of 2025, 17 December 2025; European Banking Authority, Q3 2025 supervisory data confirm solid and stable asset quality, solvency, liquidity and profitability in EU/EEA banks, 17 December 2025; Bank of England, Bank Rate reduced to 3.75% - December 2025 (Monetary Policy Summary), 18 December 2025; Bank of England, Financial Stability Report - December 2025, 2 December 2025; Sveriges Riksbank, Monetary policy decision December 2025: policy rate decision, 18 December 2025; Sveriges Riksbank, Financial Stability Report 2025:2, 13 November 2025.
UK major banks reported a higher underlying return on tangible equity than the euro area return on equity, on a lower CET1 ratio, although the two return measures are not directly comparable.
Outlook risks
Earnings are the first risk: the ECB warned that core revenues stalled in Q2 2025. Credit quality is the second, with euro area NPL ratios for SME loans and consumer credit well above the system average. In the UK, the FCA's motor finance redress scheme would cost an estimated £11 billion. In Switzerland, the Federal Council's proposal would raise capital requirements, mainly for UBS. The ECB also flagged rising bank reliance on funding from non-bank intermediaries.
What to watch
- 7 January 2026: the Riksbank's 1.75% policy rate, left unchanged on 18 December 2025, applies from this date.
- 9 January 2026: the Swiss consultation on full CET1 deduction of foreign participations by systemically important banks closes.
- Early 2026: the FCA expects to publish its policy statement and final rules on motor finance redress, if it decides to introduce a scheme.
- 2026: the European Commission's report on the overall situation of the banking system is due, with the ECB's simplification proposals as an input.
- 1 January 2027: Basel 3.1 implementation in the UK.
Primary sources: European Central Bank (Banking Supervision), ECB publishes supervisory banking statistics on significant institutions for the third quarter of 2025, 17 December 2025; Bank of England, Bank Rate reduced to 3.75% - December 2025 (Monetary Policy Summary), 18 December 2025; European Central Bank, Monetary policy decisions (18 December 2025), 18 December 2025; Bank of England, Financial Stability Report - December 2025, 2 December 2025; European Banking Authority, Q3 2025 supervisory data confirm solid and stable asset quality, solvency, liquidity and profitability in EU/EEA banks, 17 December 2025; Banco de España, ECB keeps interest rates unchanged in September, 11 September 2025; Banco de España, ECB keeps interest rates unchanged in October, 30 October 2025; Swiss National Bank, Monetary policy assessment of 25 September 2025, 25 September 2025; Swiss National Bank, Monetary policy assessment of 11 December 2025, 11 December 2025; Czech National Bank, CNB Board decisions, 18 December 2025, 18 December 2025; Bank of England, Bank Rate reduced to 4% - August 2025 (Monetary Policy Summary), 7 August 2025; Norges Bank, Rate decision September 2025, 18 September 2025; Sveriges Riksbank, Monetary policy decision September 2025: policy rate decision, 23 September 2025; Central Bank of the Republic of Türkiye, Press Release on Interest Rates (2025-41), 24 July 2025; Central Bank of the Republic of Türkiye, Press Release on Interest Rates (2025-61), 11 December 2025; European Central Bank, Governing Council proposes simplification of EU banking rules, 11 December 2025; European Central Bank, Financial Stability Review, November 2025, 26 November 2025; European Central Bank (Banking Supervision), Supervisory Banking Statistics for significant institutions, third quarter 2025, 17 December 2025; Bank of England, Bank Rate maintained at 4% - September 2025 (Monetary Policy Summary), 18 September 2025; Bank of England, Bank Rate maintained at 4% - November 2025 (Monetary Policy Summary), 6 November 2025; Norges Bank, Rate decision December 2025, 18 December 2025; Sveriges Riksbank, Monetary policy decision December 2025: policy rate decision, 18 December 2025; Magyar Nemzeti Bank, Press release on the Monetary Council meeting of 16 December 2025, 16 December 2025; Central Bank of the Republic of Türkiye, Press Release on Interest Rates (2025-47), 11 September 2025; European Banking Authority, Risk Dashboard Q3 2025, 17 December 2025; European Banking Authority, The EBA publishes the results of its 2025 EU-wide stress test, 1 August 2025; European Central Bank (Banking Supervision), ECB keeps capital requirements broadly stable for 2026 amid persisting global challenge, 18 November 2025; European Central Bank, October 2025 euro area bank lending survey, 28 October 2025; European Central Bank, Monetary developments in the euro area: October 2025, 27 November 2025; UniCredit, UniCredit: 3Q25 and 9M25 Group results, 22 October 2025; BNP Paribas, Third quarter 2025 results (press release), 28 October 2025; HSBC Holdings plc, Earnings Release 3Q25, 28 October 2025; NatWest Group plc, Q3 2025 Interim Management Statement, 24 October 2025; Banco Santander, Q3 2025 Santander results (press release), 29 October 2025; Deutsche Bank, Deutsche Bank reports record profit before tax of € 7.7 billion in the first nine months of 2025, 29 October 2025; BBVA, Earnings: BBVA posts record profit of nearly €8 billion through September, 30 October 2025; Intesa Sanpaolo, Intesa Sanpaolo: consolidated results as at 30 September 2025, 31 October 2025; Swiss Federal Council (State Secretariat for International Finance), Federal Council launches consultation on the capitalisation of foreign participations by parent companies of systemically important banks, 26 September 2025; Sveriges Riksbank, Financial Stability Report 2025:2, 13 November 2025.