Euro area banks tighten firm credit standards in Q4 2025
Euro area banks reported an unexpected net tightening of credit standards for loans to firms in the fourth quarter of 2025. This contrasts with a small net easing for housing loans, while overall loan demand increased slightly.
Risk aversion drives tighter corporate lending
Euro area banks reported a net tightening of credit standards for loans or credit lines to firms, reaching 7% in the fourth quarter of 2025. This development, which surpassed previous expectations, was primarily driven by perceived risks to the economic outlook and a lower risk tolerance among banks, signaling a high degree of risk aversion.
Banks in Germany and France notably reported tighter credit standards for firms, partly influenced by changes in trade policies, while Spain and Italy saw unchanged standards.
For the first quarter of 2026, banks anticipate a further net tightening for firm loans (6%).
In contrast, credit standards for housing loans saw a small net easing of -2%, influenced by competition despite tightening risk perceptions.
Consumer credit standards tightened further by 6%, mainly due to banks' lower risk tolerance and heightened risk perceptions.
Looking ahead to Q1 2026, banks expect housing loan standards to tighten (3%) and consumer credit standards to tighten more markedly (9%).
Loan demand rises despite stricter terms
Firms' demand for loans increased slightly by 3% in Q4 2025, mainly driven by needs for inventories, working capital, and debt refinancing.
Interest rates offered only slight support, with demand rising in Germany and Italy but decreasing in Spain and France.
Housing loan demand saw a net increase of 9% due to improved market prospects, while consumer credit demand declined by -2% as confidence weakened.
Overall credit terms and conditions tightened for firms and consumer credit, marking the first net tightening for firms since Q4 2023, influenced by lending rates and collateral.
For housing loans, terms eased, with narrowing margins.
Banks also reported a net increase in rejected loan applications for large firms, SMEs, and consumer credit.
Persistent caution in a complex landscape
The survey reveals banks' persistent caution, especially in corporate lending, despite a slight rise in overall loan demand.
This suggests banks remain highly selective, driven by elevated risk perceptions and ongoing regulatory pressures.
Such fragmented credit market signals complicate the ECB's monetary policy transmission and financial stability assessments.