Eurozone banks are still in a process of balance sheet repair. Although bank lending is currently recovering, many banks have continued to expand their holdings of government bonds and remained reluctant to grant loans despite the progress they have made in recapitalisation. Analyses based on the IW Bank Monitor, a database containing financial data from the Eurozone’s largest banks, suggest that banks reduced their loans in order to meet the regulatory equtiy capital ratio ahead of the European Central Bank’s stress test. What is apparent, however, is that profitable banks with stable funding sources like deposits have been better able to maintain their lending. Further analyses point up the positive influence of banks’ profitability on the stability of their lending, their ability to pass the stress test and their progress in recapitalisation. Financial stability and an adequate supply of credit to the real economy therefore require a business environment in which banks can return to profitability.