European Central Bank (ECB) Banking Supervision published aggregated results of its 2025 Supervisory Review and Evaluation Process (SREP) for 105 directly supervised banks and set out supervisory priorities for 2026-28. The overall Common Equity Tier 1 (CET1) capital requirement and guidance applicable in 2026 remained broadly stable at 11.2% of risk-weighted assets, with the binding CET1 Pillar 2 requirement unchanged at 1.2%, while the non-binding Pillar 2 guidance declined to 1.1% from 1.3%. The review reports robust capital, liquidity and profitability metrics, including a weighted average CET1 ratio of 16.1%, leverage ratio of 5.9%, total capital ratio of 20.2%, liquidity coverage ratio of 158% and net stable funding ratio of 127% (all in the second quarter of 2025), and annualised return on equity rising to 10.1%. Asset quality remained strong with a non-performing loan ratio of 1.9%, although commercial real estate and small and medium-sized enterprise portfolios stayed above average at 4.6% and 4.9%, and Stage 2 exposures edged up to 9.6%. Compared with the previous year, the ECB issued about 30% fewer new qualitative measures, mainly targeting credit risk, governance, capital adequacy and operational risk, and it intensified follow-up where remediation progress is insufficient; the average overall SREP score improved slightly to 2.5. Add-ons to Pillar 2 requirements were applied to fewer banks for insufficiently provisioned non-performing exposures (ten banks, down from 18) and leveraged finance (six banks, down from nine), while 14 banks received a binding leverage ratio Pillar 2 requirement, five received non-binding leverage ratio guidance and four were subject to quantitative liquidity measures; combined buffer requirements increased slightly due to higher countercyclical capital buffers in some countries. For 2026-28, supervisory priorities focus on resilience to geopolitical risks and macro-financial uncertainty, and on operational resilience and ICT capabilities, including sound credit standards, adequate capitalisation through consistent implementation of the Capital Requirements Regulation (CRR3), prudent management of climate and nature-related risks, and remediation of deficiencies in risk reporting and data aggregation. Final SREP decisions or letters were sent to banks by end-October 2025, and a more transparent and simplified methodology for calculating Pillar 2 requirements is set to take effect in 2026 alongside a revised, broader methodology for assessing banks’ Internal Capital Adequacy Assessment Process.

Original source View in tracker