At the end of September 2016, banks under the direct supervision of the European Central Bank held €921 billion of non-performing loans, equal to 6.4% of their total lending, according to figures the ECB cited in a 2017 address on Europe’s bad-loan burden. Six euro area countries carried double-digit ratios at the time: Cyprus, Greece, Italy, Ireland, Portugal and Slovenia. Working through that backlog took years.

In the analysis of Europe’s NPL market in 2026 that data room provider Drooms published on Sept. 3, the same group of banks held €355.16 billion of non-performing loans. Even after a small decline, the total sat €15.51 billion higher than at the end of 2022. Drooms warned that the dip said little about whether credit risk was genuinely receding.

A Ratio That Flatters

In the ECB’s supervisory banking statistics for the second quarter of 2026, published on Sept. 15, non-performing loans at significant institutions rose by €7.65 billion, or 2.1%, after an increase of €7.92 billion in the first quarter. Over the same six months, the headline ratio barely moved and ended June at 2.17%.

Total loans and advances at the supervised banks grew by €429.27 billion, or 2.6%, in the second quarter, faster than the 2.1% rise in bad loans. The ratio fell even as the stock of troubled loans grew.

The banks carrying those loans reported an annualised return on equity of 10.73% in the second quarter, the highest since the ECB’s series began in 2015, and their cost-to-income ratio fell to 53.06%, its lowest since the series began. Profits on that scale give lenders room to hold and work out problem loans over time rather than sell them quickly, which may help explain why the stock is shrinking so slowly. At the aggregate level, stage 2 loans, which show a significant increase in credit risk, fell to 9.18% from 9.59% a year earlier. The non-performing ratio for small and medium-sized enterprises rose to 4.72% in the second quarter from 4.65% in the first, although it remained below the 4.85% recorded a year earlier.

The Strain Moves North

Across the EU and European Economic Area, the non-performing ratio for commercial real estate loans eased from 4.3% to 4.1%, Drooms found. The ECB put the ratio for loans secured on commercial property at its significant institutions at 4.36% in the second quarter of 2026, down from 4.55% a year earlier.

In Germany, the commercial real estate NPL ratio rose from 5.9% to 6.9%, the highest level among the five major markets in the Drooms analysis. In France, total non-performing loans across all sectors grew by €7.58 billion over 2025. A decade ago, as the 2016 ECB figures showed, the heaviest burdens sat on the southern and western edges of the euro area. The increases recorded in 2025 came from its two largest economies, and in Germany they were concentrated in commercial property lending.

Earlier Cycles Offer a Guide

Sales drove much of the last clean-up, and European banks sold around €200 billion of loan portfolios in the three years to early 2017, a figure the ECB noted did not consist solely of non-performing debt. After the 2008 financial crisis, banks across Central and Eastern Europe also came under pressure to sell troubled loans and repossessed property, frequently at a discount, to buyers prepared to take on the work of restructuring and re-letting them. Some of the buyers who stepped into the region’s distressed property market after the financial crisis went on to build portfolios that stretch well beyond their home countries.

In Central and Eastern Europe, the stock of non-performing loans rose 4.5% to €28.6 billion in the year to December 2025, according to the EBRD’s NPL Monitor published in July 2026. The rise broke a run of annual falls. Even so, the region’s average ratio dropped to a record low of 1.86%, because new lending expanded faster than bad debt. The EBRD warned that the gap between stronger and weaker countries and sectors was widening. In the euro area, it said, supervisors were concentrating on early intervention and on newer sources of risk, commercial property among them, and were watching more closely how banks connect with private credit funds.

Drooms expects the banks holding stressed property loans to run out of room for further extensions. At that point they will have to decide whether to take control of the collateral or sell the debt to someone else. The ECB’s figures show a net increase of €15.57 billion in non-performing loans across the first half of 2026 alone.