Bank Lending Risk Report 2025: Trends, Insights, Strategies
The bank lending risk landscape in 2025 has evolved significantly amid shifting economic conditions and a dynamic financial system. This professional report synthesizes the latest data and authoritative analyses to provide a comprehensive overview for readers in the financial sector and beyond.[1][2]
Executive Summary
Recent developments show that credit risks for banks are increasing due to heightened exposure to nonbank financial institutions, deteriorating commercial real estate conditions, and consumer lending challenges. The financial sector remains stable overall, but pockets of vulnerability are increasingly drawing regulatory and investor attention.[2][1]
Nonbank Financial Institutions and Systemic Stability
Nonbank financial institutions (NBFIs) have become critical market makers and liquidity providers in private credit, real estate, and crypto markets. Their expansion brings greater risk-taking and interconnectedness: NBFIs now hold around half of global financial assets and account for half of daily FX market turnover. This interconnectedness creates channels for risk transmission into the banking sector. Stress tests show that adverse shocks in nonbanks, such as downgrades or falling collateral values, could significantly weaken banks’ capital and liquidity ratios.[1]
- In some scenarios, 10% of US banks and 30% of European banks (by assets) could experience regulatory capital ratio drops of more than 100 basis points if nonbanks fully draw their credit lines.[1]
- Policymakers are calling for better data, scenario analysis, and cross-border cooperation to address these systemic risks.[1]
Commercial Real Estate and Consumer Lending
The commercial real estate (CRE) sector, primarily office properties, continues to underperform due to high vacancy rates and inhibited refinancing capabilities resulting from elevated interest rates. Multifamily and industrial properties are facing increased vacancy rates due to overbuilding, while retail properties are relatively stable except for malls. Higher operating costs and slower rent growth have weakened property-level cash flows and asset quality.[2]
Consumer lending quality has deteriorated slightly. Real income growth has slowed, and the savings rate has fallen, but household finances remain broadly stable. Nonetheless, asset quality metrics for consumer loans have degraded, prompting banks to tighten lending standards.[2]
Market Risks and Bank Performance
Despite challenges, US banks posted a strong 2024, with net income 5.6% higher than 2023. The asset quality of most loan portfolios remained favorable, but commercial real estate, credit card, and corporate loans saw increases in delinquency and charge-off ratios. Bank liquidity levels were stable, but unrealized losses on securities portfolios, driven by elevated long-term rates, weighed on profitability:[2]
- Net interest margins declined for more than half of banks as funding costs rose faster than asset yields.[2]
- The industry’s capital position improved as retained earnings increased. However, the number of problem banks grew, albeit remaining within a normal range for non-crisis periods.[2]
Outlook and Policy Priorities
Looking forward, regulators emphasize the need for sound fiscal and monetary policies alongside robust liquidity management tools. Strengthening internationally agreed capital and liquidity standards such as Basel III, enhanced supervision of nonbanks, and better recovery frameworks are key policy priorities. Private credit funds and their lack of transparency demand regulatory attention, and stress testing must now reflect the new reality of rapid risk transmission between banks and NBFIs.[1]
Banks and policymakers must jointly innovate, monitor, and preempt risks to ensure sector resilience as the financial system becomes more intricate and interconnected.[1][2]
Sources:
- IMF: “Growth of Nonbanks is Revealing New Financial Stability Risks”[1]
- FDIC: “2025 Risk Review”[2]
