Euro area bank lending survey signals tighter credit for firms and consumer borrowers in late 2025

New data from the euro area bank lending survey show banks turning more cautious on risk as 2025 closed, with mixed effects across loan categories.

Credit standards tighten for firms and consumer credit

According to the January 2026 BLS, euro area banks unexpectedly tightened credit standards for loans and credit lines to enterprises in the fourth quarter of 2025, with a net 7% of banks reporting stricter criteria. This followed a smaller net tightening in the third quarter and exceeded banks’ earlier expectations of just 1%.

Concerns about the outlook for firms and the broader economy, together with lower risk tolerance, were the main drivers of this shift.

Moreover, banks reported a further net tightening of credit standards for consumer credit and other lending to households, with a net percentage of 6%, which was above what they had anticipated in the previous survey round.

By contrast, credit standards for loans to households for house purchase eased slightly on a net basis, with a net percentage of -2%. However, banks had not expected this small net easing for housing loans, underlining how competition in mortgage markets counterbalanced still elevated risk perceptions.

Drivers behind housing and consumer lending trends

For housing loans, stronger competition among banks exerted an easing impact on standards, while risk perceptions related to the economic outlook continued to have a tightening effect. Overall terms and conditions for housing loans, defined as the actual contractual conditions, also eased in the quarter.

For consumer credit, banks’ lower risk tolerance and higher risk perceptions were the dominant forces behind the tightening. Banks’ terms and conditions on consumer credit became stricter, adding to the impact of tighter approval criteria on household borrowing conditions.

In parallel, banks indicated that overall terms and conditions tightened for loans to firms as well, pointing to a broad-based repricing of risk across corporate and consumer segments. That said, the easing in mortgage conditions shows that competition can still offset risk concerns in specific market segments.

Loan application rejections and expected credit conditions

This new bank lending survey reported a net increase in the share of rejected loan applications for firms and for consumer credit in the fourth quarter of 2025.

The rise in rejections for firms was stronger than in the previous quarter, while for households it was smaller, and the share of rejected housing loan applications remained broadly unchanged in net terms.

Looking ahead to the first quarter of 2026, banks expect a moderate further net tightening of credit standards for firms and a slight tightening for housing loans. They foresee a more marked tightening for consumer credit, suggesting that household borrowers will face tougher conditions than corporate borrowers in relative terms.

These forward-looking assessments in the bank lending survey ecb indicate that the tightening cycle in consumer and corporate lending is not yet over, even if some pockets such as mortgages have temporarily benefited from competition.

Loan demand patterns across households and firms

In the fourth quarter of 2025, banks reported a continued small net increase in demand for loans or credit lines to firms, with a net percentage of 3%. This matched the rise seen in the third quarter and exceeded the earlier expectation of 0% net change in corporate loan demand.

Firms’ borrowing was mainly driven by higher financing needs for inventories, working capital and other short-term purposes. However, fixed investment made an overall neutral net contribution to demand, indicating that capital expenditure plans remained cautious despite the modest increase in borrowing.

Demand for housing loans also increased in net terms, with a net percentage of 9%, though more moderately than before and broadly in line with previous expectations. Improved housing market prospects were the main factor behind higher mortgage demand, while weakening consumer confidence weighed in the opposite direction.

By contrast, demand for consumer credit and other lending to households declined slightly, with a net percentage of -2%. This followed broadly unchanged demand in the third quarter and turned out somewhat weaker than banks had expected. Lower consumer confidence dampened demand even as the prevailing level of interest rates continued to support borrowing.

For the first quarter of 2026, banks anticipate a net increase in loan demand from both firms and households, suggesting that the economy will continue to rely on bank financing despite tighter conditions. That said, the composition of demand is likely to remain sensitive to confidence indicators and sector-specific trends.

Funding conditions and regulatory effects on lending

On the liability side, banks’ access to retail funding and money markets deteriorated slightly in the fourth quarter of 2025. However, access to funding via debt securities and securitisations eased, pointing to some relief from capital market instruments.

Over the next three months, banks expect their overall access to funding to remain broadly unchanged. They foresee only a slight further easing in debt securities funding, suggesting that wholesale market conditions will stay broadly stable for now.

In response to new regulatory or supervisory actions, banks reported a net increase in their capital and holdings of liquid assets, while indicating a temporary decline in risk-weighted assets. Moreover, these regulatory measures had a net tightening impact on credit standards across all loan categories, and banks expect further net tightening from such actions in 2026.

Role of non-performing loans and credit quality indicators

Banks reported a small net tightening impact of non-performing loan ratios and other credit quality indicators on credit standards for all loan categories in the fourth quarter of 2025. Risk perceptions and risk aversion were highlighted as the most prominent factors shaping these decisions.

For the first quarter of 2026, banks expect a further small tightening impact on credit standards for loans to firms and for consumer credit. However, they foresee a broadly neutral impact from non-performing loans and other credit quality measures on housing loans, pointing to relatively stable perceived risks in mortgage portfolios.

These findings underline how asset quality considerations continue to influence lending policies in the euro area. Moreover, they show that even limited deterioration in credit indicators can translate into stricter lending criteria when banks are already cautious.

Sector-specific credit developments in the euro area

Credit standards tightened in several key sectors in the second half of 2025, including construction, wholesale and retail trade, energy-intensive manufacturing and commercial real estate. The strongest net tightening was observed in the manufacturing of motor vehicles, reflecting sector-specific challenges.

Tightening remained moderate in manufacturing overall, while non-financial services other than commercial real estate saw no or only small net tightening of standards. Moreover, banks reported a net increase in demand for loans in non-financial services excluding commercial real estate, but no changes or only slight declines in other sectors during the same period.

For the first half of 2026, banks expect either a further net tightening or broadly unchanged credit standards across the main economic sectors. They project a net increase in loan demand for most sectors except for motor vehicle manufacturing, wholesale and retail trade, and commercial real estate, where demand is expected to be flat or weaker.

Impact of trade policy uncertainty and risk tolerance

Based on a new question on trade policies and related uncertainty, almost half of the banks participating in the BLS assessed their exposure as important. They reported that changes in trade policy had a tightening impact on credit standards, mainly via a decrease in risk tolerance.

These developments also had a dampening effect on loan demand from firms, as trade-related uncertainty weighed on investment and financing decisions. Moreover, banks expect a similar impact from trade policy and uncertainty in 2026, suggesting that external risks will remain a significant factor for lending behaviour.

The euro area bank lending survey shows that trade-policy shocks can amplify domestic risk concerns, reinforcing banks’ tendency to tighten conditions when global uncertainties rise.

Survey design, coverage and timing

The quarterly BLS, developed by the Eurosystem, is designed to improve understanding of bank lending behaviour in the euro area. The January 2026 round reports on changes observed in the fourth quarter of 2025 and on expectations for the first quarter of 2026, unless otherwise noted.

The survey was conducted between 15 December 2025 and 13 January 2026, covering a total of 153 banks. The response rate in this round was 100%, which enhances the reliability of the results and provides a comprehensive view of lending conditions across participating institutions.

Chart 1 documents changes in credit standards for loans or credit lines to enterprises and the underlying factors, using net percentages of banks reporting a tightening. Chart 2 shows changes in loan demand from enterprises and its drivers, again based on net percentages of banks reporting an increase in demand.

Outlook for euro area credit conditions in 2026

Overall, the January 2026 euro area bank lending survey depicts a banking system that is gradually tightening credit conditions for firms and consumers amid rising risk concerns and regulatory pressures. Nonetheless, loan demand from both households and businesses is expected to increase in early 2026.

While sectoral divergences remain significant, especially in motor vehicle manufacturing and commercial real estate, the survey suggests that euro area banks will continue to balance risk control with the need to support economic activity. Moreover, funding conditions and trade policy developments will be key factors to watch as 2026 unfolds.