Frankfurt am Main – September 07, 2026 -- Germany is the only major European banking market where non-performing loans (NPLs) are rising again, with the stock of bad debt at German banks climbing 87% between 2019 and 2025, according to a new BearingPoint study covering 216 European banks over a 13-year period.
The increase runs counter to the broader European trend: most markets across the continent continued to reduce problem loans over the same period, even as the sector-wide average NPL ratio fell to 1.9%.
Commercial real estate lenders drive Germany's bad-loan spike
The rise in German NPLs is concentrated in commercial real estate. At specialized property lenders, the NPL ratio jumped from 0.85% to 4.09% of total balance-sheet assets, while risk levels at most other German institutions remained largely stable. BearingPoint notes that the firms which cut costs most aggressively over the past decade are now among those carrying the highest risk concentrations, undercutting the assumption that low cost ratios alone signal a resilient business model.
Capital buffers reach two-decade high across Europe
European banks' core capital ratio (CET1) rose from 15.7% in 2013 to roughly 20% in 2025, and average cost-income ratios fell from 62.9% to 52.7% between 2019 and 2025. German banks improved efficiency sharply, cutting their cost-income ratio to 54.8% -- near Benelux levels and ahead of Austria. "Our analysis shows that high capital ratios and solid liquidity are now baseline requirements. Banks will differentiate through data-driven steering, intelligent automation and the ability to manage regulatory complexity efficiently," said Alexander Beck, Partner at BearingPoint.
Profitability gap with Southern Europe and the Nordics persists
Despite efficiency gains, German banks' return on equity stood at 8.6% in 2025, trailing the European average of 10.4% and far below the 14% to 15.4% posted by lenders in Southern Europe and the Nordics. "The institutions are more robust than ever, yet problem loans are rising, earnings remain heavily dependent on interest income, and the profitability gap with Europe's leaders persists," said Dr. Kordula Oppermann, Director at BearingPoint.
Interest income dependence deepens instead of diversifying
European banks' average ROE rose from 4.1% in 2020 to 10.4% in 2025, but the study attributes much of that recovery to the interest-rate cycle rather than structural improvement. In Germany, the share of net interest income in total revenue climbed from roughly 46% to 55% between 2019 and 2025, showing that the long-called-for diversification away from traditional interest-rate business has not materialized. BearingPoint frames the coming years as a "reality check" for the sector, arguing that competitiveness will hinge on locking in efficiency gains, diversifying revenue and deploying new technology productively rather than on the next rate cycle.
AI adoption to be judged by core-process integration, not pilot counts
The study argues that AI success in banking will not be measured by the number of pilot projects but by whether banks restructure core value-chain processes -- including lending, risk management, compliance and customer service -- around the technology. "Not the number of individual AI use cases will determine success, but the ability to combine trustworthy data, modern operating models and scalable AI capabilities into a sustainable performance architecture," said Dr. Robert Bosch, Global Head of Financial Services at BearingPoint. The study is based on published annual reports and Pillar 3 disclosures of European banks under ECB or national supervisory oversight, covering 168 institutions for reporting year 2025 and 216 banks across the full 2013-2025 period.