The Cypriot government's efforts have not been in vain. By the end of 2024, the island nation had reduced Stage 2 loans more than any other EU country.
According to the European Banking Authority's (EBA) new Risk Assessment Report, published in spring 2025, the volume of such loans in Cyprus fell by an impressive 34.5% compared to December 2023, accounting for only 5.8% of total loans issued.
For comparison:
- In Belgium, the reduction was 32.2% (to 7.4%).
- In Sweden, it was 22.1% (to 4.8%).
- in Italy (to 9.2%),
- in Greece, and 12.5% in Greece.
At the opposite end of the ranking were Denmark, the Netherlands, and Slovenia, where the share of problem loans increased significantly. Denmark's share rose by 44% (to 15.9%), the Netherlands' by 28.2% (to 10.1%), and Slovenia's by 25.8% (to 9.3%). Meanwhile, the EU average was 4.4% at the end of 2024.
Stage 2 loans are those for which there are signs of potential deterioration in the borrower's creditworthiness. This is an intermediate stage between standard and non-performing loans. At this stage, banks actively monitor borrowers and review debt servicing terms.
According to the same EBA report, the volume of non-performing loans (NPLs) in the EU increased to €375 billion by the end of 2024, up from €365 billion in 2023.
Consequently, the NPL ratio increased to 1.88%. Additionally, Stage 2 loans reached a record level of 9.7% of total lending, primarily due to an increase in household debt.
Despite some negative signals, the EBA report emphasizes that the EU banking sector remains highly resilient in terms of key parameters, such as capital adequacy, liquidity, and profitability.
The report states that despite the deterioration in asset quality, lower interest rates and stabilization in the real estate market have improved the outlook for the banking sector despite ongoing geopolitical uncertainty.
As of the end of 2024,
- CET1 (core tier 1 capital ratio) stood at 16.1%.
- EU/EEA banks' profits grew by approximately 9%.
- Return on equity (RoE) reached 10.5% (compared to 10.4% in 2023).
- Total bank assets grew by 3.2% to €28.2 trillion.
Three-year sector development plans anticipate an additional 1.7% growth in 2025, with higher rates projected for 2026–2027. Despite the positive financial performance, the EBA report warns of several potential risks.
- Geopolitical instability remains a key source of uncertainty for banks.
- Possible tariff wars and disruptions in global supply chains could affect export-oriented sectors, particularly in countries with developed industries.
- Transitional and physical climate risks could also significantly impact banks' loan portfolios.
- Cyber threats and fraud are becoming increasingly significant problems that could disrupt operational stability.
Thus, despite the challenging external economic environment, banks in Cyprus and several other EU countries are making notable progress in managing credit risk. The decline in the share of "suspicious" loans indicates more effective work by credit institutions and improved debt servicing quality. At the same time, the report emphasizes the need for constant vigilance amid growing geopolitical tensions, rising operational risks, and the transformation of banking models toward sustainable development.