Credit supply tightens, demand falls in Q1 2026
The Bank of Spain's latest Bank Lending Survey shows that credit supply tightened across all segments in the first quarter of 2026, while demand for loans decreased generally. Banks anticipate further tightening of supply and reduction in demand for the second quarter.
Lending criteria harden across sectors
In the first quarter of 2026, lending criteria tightened for both households (housing and consumer loans) and, more intensely, for businesses.
This adjustment was more unfavorable than banks had expected three months prior, influenced by increased geopolitical tensions, particularly the conflict in the Middle East.
The percentage of rejected loan applications rose slightly for businesses and housing loans, remaining stable for consumer credit.
General conditions applied to new loans were largely stable, except for a slight tightening in housing loans, driven by increased interest rates and margins due to higher perceived risks.
Loan maturities also saw a minor reduction for consumer loans.
Demand shrinks amid uncertainty
Credit demand experienced moderate declines across all three segments in Q1 2026.
For businesses, the decrease primarily affected SMEs and longer-term maturities, while demand from large companies remained stable.
This negative trend in demand was more pronounced than banks' earlier forecasts, partly due to heightened geopolitical uncertainty.
Banks attributed the fall in business loan demand to reduced fixed capital investment and fewer merger and restructuring operations.
Higher interest rates were cited as the main reason for lower household loan demand, with decreased consumer confidence also contributing to the decline in consumer and other purpose loans.
Banks expect this trend of tightening supply and falling demand to intensify in Q2 2026.
Geopolitical shadows lengthen
The survey highlights a banking sector grappling with rising perceived risks and a cautious outlook, driven by persistent geopolitical tensions.
While current impacts on lending policy are limited, the anticipated intensification of these trends suggests a challenging environment ahead for credit access.
This cautious stance, coupled with stable bank profitability despite ECB rate decisions, underscores a focus on risk management over growth.
The increasing importance of securitization for capital release further indicates banks' strategic adaptations to evolving market conditions.