Euro area firms face tighter bank lending, rising rates in Q4 2025
Euro area firms reported a further tightening of bank lending conditions and higher interest rates on bank loans in the fourth quarter of 2025. The ECB's latest SAFE survey indicates a net 12 percent of firms faced increased rates, while banks' willingness to lend slightly improved.
Lending conditions tighten, needs rise
Euro area firms experienced a further tightening of bank lending conditions in the fourth quarter of 2025, according to the ECB's latest Survey on the Access to Finance of Enterprises (SAFE).
A net 12 percent of firms reported an increase in interest rates charged on bank loans, a significant rise from 2 percent in the previous quarter.
This tightening affected both large firms and small and medium-sized enterprises (SMEs), with other price and non-price loan conditions also becoming slightly stricter.
Despite this, firms' needs for bank loans saw a modest rise, with a net 3 percent indicating increased demand, up from 0 percent previously.
However, the perceived availability of bank loans declined slightly, with a net 2 percent of firms reporting reduced access.
This resulted in the euro area bank loan financing gap indicator increasing to 3 percent, up from 1 percent in the prior quarter.
Firms' perceptions of banks' willingness to lend, however, showed a slight improvement, with 4 percent of firms reporting an increase.
Economic outlook and labor concerns persist
The general economic outlook remained the primary factor constraining external financing, cited by a net 20 percent of firms.
Despite this, firms reported rising turnover in Q4 2025 (net 7 percent) and maintained optimistic expectations for Q1 2026. However, profits continued to deteriorate, with a net 10 percent of firms reporting a decline, particularly among SMEs.
Investment activity saw a slight decrease, with a net 6 percent of firms indicating a rise, down from 8 percent, though future investment expectations are marginally more optimistic.
Major concerns limiting production included the availability of skilled labor and rising production or labor costs, both cited by 59 percent of firms.
Trade policy uncertainty also continued to affect business decisions.
AI adoption meets inflation reality
The survey highlights a dichotomy: while euro area firms are increasingly adopting AI to improve processes, they face persistent economic headwinds.
Despite optimistic turnover expectations, declining profits and sticky inflation expectations suggest a challenging environment for leveraging new technologies.
This indicates that structural issues like labor costs and economic uncertainty continue to overshadow technological advancements for many businesses.