Italian banks expect tighter credit, weaker loan demand

In the first quarter of 2026, credit standards for loans to firms and for household mortgage loans remained unchanged.

However, standards for consumer credit were tightened slightly.

Looking ahead to the second quarter, banks expect a considerable tightening of credit standards for firms, with a more pronounced impact on sectors most exposed to recent geopolitical and energy developments.

Consumer credit standards are also expected to tighten slightly.

Firms' demand for loans declined in Q1, primarily due to lower borrowing needs for fixed investment.

Household demand for mortgage loans remained stable, while consumer credit demand increased, driven by higher spending on durable goods and improved consumer confidence.

For the current quarter, demand for loans is projected to fall for both firms and households.

The share of non-performing loans (NPLs) and other credit quality indicators had a slightly restrictive impact on consumer credit supply policies in Q1, with no further tightening expected for the current quarter.

Banks reported a deterioration in money market conditions, though short-term debt securities and deposits saw a slight improvement.

Credit standards for almost all main funding sources are expected to worsen in Q2, especially for medium-to-long-term debt securities.

ECB key interest rate decisions negatively affected banks' profitability in the six months ending March, but banks anticipate positive effects from increased net interest income in the subsequent six months.

A new survey question revealed banks primarily conduct non-significant risk transfer (non-SRT) and synthetic SRT securitization transactions, mainly to improve funding access, strengthen liquidity, and free up capital for new lending.

Securitization positively impacted credit standards and volumes over the last 12 months, with these effects expected to continue.