European banking sector credit risk escalation

European banking institutions are facing increased credit risks driven by geopolitical, economic, and monetary policy shifts. In mid-2026, reports from the European Central Bank indicated that banks were adopting a more preventive stance, tightening credit conditions due to rising risks. This tightening disproportionately affected small and medium-sized enterprises, with approximately 42% of surveyed companies reporting higher interest rates, commissions, or collateral requirements.

By September 2026, the focus shifted toward the impact of rising interest rates on specific regions, such as Greece. Following an ECB decision to raise deposit rates to 2.50%, concerns emerged regarding a potential new wave of non-performing loans. Unlike previous crises, this risk is characterized by historically reliable borrowers struggling with the combined pressure of increased loan installments, energy costs, and living expenses. While systemic banks maintain relatively strong balance sheets, financial institutions are closely monitoring a growing reservoir of loans showing signs of weakness, such as payment delays or the need for restructuring.