Non-performing loans (NPLs) in central, eastern and south-eastern Europe (CESEE) fell to their lowest levels since the global financial crisis in 2024, but early indicators suggest rising risks ahead, according to the European Bank for Reconstruction and Development (EBRD) on July 9.

The latest edition of the NPL Monitor, published under the Vienna Initiative, reported a 4.4% y/y decline in NPL volumes in the region, bringing the total down to €26bn ($28.1bn). The average NPL ratio across the 17 CESEE countries dropped to 1.9%, falling below the 2% threshold for the first time since 2008.

“While the region has so far avoided a sharp deterioration in credit quality, the risk of an NPL build-up remains,” the EBRD said. “Continued vigilance, proactive supervision and enhanced transparency will be essential to support the timely identification and resolution of distressed assets.”

Despite the headline improvement, supervisors are becoming increasingly concerned about the potential for asset quality deterioration. The EBRD cited sector-specific shocks, affordability pressures, and refinancing risks as early stress signals, particularly in consumer lending and commercial real estate.

Market activity in distressed debt showed a modest recovery in 2024, with transaction pipelines expanding in Greece, Poland, Romania and Turkey. Secondary sales and forward-flow agreements contributed to renewed investor interest. However, the EBRD noted that “legislative barriers, data limitations and regulatory fragmentation continue to weigh on investor appetite in less mature markets.”

Demand for short-term consumer credit has increased, driven by persistent cost-of-living pressures, prompting supervisory bodies to tighten scrutiny of loan origination standards and borrower affordability metrics.

In the wider euro area, the European Central Bank has incorporated geopolitical and macro-financial risks—such as energy supply shocks and trade fragmentation—into its supervisory priorities. Regulators have also intensified monitoring of unsecured lending and valuations in commercial real estate.

The NPL Monitor is a semi-annual publication under the Vienna Initiative’s NPL Initiative and is released alongside companion publications by the International Monetary Fund and the European Investment Bank.

“The region’s achievement in reducing non-performing loans is significant, but maintaining this progress will require coordinated regulatory effort and market discipline,” the EBRD concluded.