German banks tighten corporate lending policies further

German banks tightened their lending policies for corporate loans as planned in the first quarter of 2026, with a net share of 16 percent of banks reporting stricter requirements, unchanged from the previous quarter.

Policies for consumer and other household loans also tightened (net 11 percent), while those for private housing loans saw a smaller net tightening of 4 percent (down from 11 percent).

Banks primarily attributed these stricter policies to increased credit risk and reduced risk tolerance.

For corporate loans, this assessment was mainly driven by sector- and firm-specific factors.

Geopolitical developments, including the conflict in the Middle East, had only a minor impact on lending policies.

Simultaneously, banks tightened lending conditions across all segments.

For corporate loans, this involved significantly higher interest rates, slightly wider margins regardless of creditworthiness, and stricter collateral requirements.

Increased refinancing costs also contributed to these adjustments.

Corporate loan demand in Germany saw a marginal increase in Q1 2026, driven by large companies and short-term credit for M&A and working capital.

However, household demand for bank loans declined for the first time since 2023, with a more pronounced drop in consumer and other loans.

Loan rejection rates increased for both corporate and consumer loans.

Non-performing loan (NPL) ratios and other credit quality indicators continued to exert a restrictive influence on corporate lending policies.

Past and expected ECB policy rate decisions marginally improved banks' profitability in winter 2025/26, with further positive effects anticipated for summer 2026.