NPL levels fall to record lows in Central and Eastern Europe

However, the latest report warns that credit risks are becoming increasingly unevenly distributed across countries and sectors of the economy.

According to the report, in the countries of Central, Eastern and South-Eastern Europe (CESEE), the stock of non-performing loans (NPLs) increased by 4.5% in 2025, reaching €28.6 billion, reversing the declining trend observed in previous years. Despite this increase, the average NPL ratio fell to a new historical low of 1.86%, as credit growth outpaced the rise in problematic exposures.

At the same time, the NPL coverage ratio stood at 62.7%, down by 1.5 percentage points compared with the end of 2024, reflecting lower provisioning levels in certain markets.

Significant differences between countries

Despite the overall positive picture, the EBRD highlights that developments vary considerably across countries, as economic performance, exposure to specific sectors, and risk management policies are leading to divergent trends.

Hungary, Romania, and Slovenia recorded notable increases in the volume of non-performing loans, while several other markets continued to experience improvements in the quality of banking portfolios. In the European Union countries of the Central and Eastern European region, the share of Stage 2 loans declined to 8.5% at the end of 2025, from 10.4% a year earlier. Stage 3 loans remained broadly unchanged, at around 2%. However, the report stresses that Stage 2 portfolios continue to require close monitoring, as they may deteriorate in an environment of heightened uncertainty.

Concerns over real estate, construction, and SMEs

The report identifies increased risks in specific sectors of the economy. The commercial real estate (CRE) market continues to show signs of pressure, while the construction sector records the highest NPL ratio. At the same time, small and medium-sized enterprises (SMEs) remain particularly vulnerable, especially those operating in export-oriented sectors, due to geopolitical tensions and uncertainty in global trade. The EBRD also notes that consumer lending requires close monitoring.

NPL transaction market undergoing changes

According to the NPL Monitor, the market for non-performing loan transactions is gradually evolving. Large-scale portfolio sales, which characterised previous years, are increasingly being replaced by more targeted smaller-scale transactions, forward-flow agreements, and secondary portfolio transfers.

New supervisory framework from the ECB

The report notes that the European Central Bank (ECB) continues to prioritise the early identification of credit risks, focusing on lending standards, coverage of non-performing exposures, and risks arising from commercial real estate, SMEs, and interest-only mortgage loans.

From 2026, the ECB will introduce changes to the supervisory framework for non-performing exposures, including multi-year coverage requirements for significant banks and a more harmonised treatment of legacy problem loans at less significant institutions.

Despite the resilience demonstrated so far by banking systems across the 17 CESEE countries and other markets monitored by the EBRD, the report warns that geopolitical tensions, fragmentation of global trade, and weaker growth prospects could lead to a renewed increase in non-performing loans in the coming years. For this reason, the timely identification of risks, effective supervision, and rapid management of distressed assets remain essential to maintaining financial stability.