Euro area banks reported a notable shift in lending behaviour in the fourth quarter of 2025, according to the January 2026 Bank Lending Survey (BLS). While credit standards for housing loans eased slightly, banks tightened standards for corporate and consumer lending, citing higher risk perceptions and reduced risk tolerance.
Corporate Lending:
Banks unexpectedly tightened credit standards for loans to firms, with 7% of banks reporting stricter internal guidelines—surpassing prior expectations of 1%. The tightening reflected concerns over the economic outlook and firms’ financial positions. Demand for corporate loans increased modestly, driven primarily by inventories, working capital, and other financing needs, while fixed investment contributed neutrally. Banks expect continued moderate tightening in the first quarter of 2026.
Household Lending:
For housing loans, banks reported a slight net easing of standards (-2%), influenced by competitive pressures, although risk considerations limited the impact. Demand for housing loans rose moderately (net 9%), supported by improved housing market prospects, though subdued consumer confidence moderated growth. Consumer credit, in contrast, experienced further tightening (net 6%) and a slight decline in demand (-2%), as weaker consumer confidence outweighed the effects of low interest rates. A stronger tightening of consumer credit standards is expected in early 2026.
Funding and Regulatory Factors:
Access to retail funding and money markets deteriorated slightly, while conditions improved for debt securities and securitisations. Regulatory and supervisory actions led banks to increase capital and liquidity holdings, temporarily reduce risk-weighted assets, and tighten credit standards across all loan categories.
Sectoral Trends:
Credit standards tightened most sharply in motor vehicle manufacturing, construction, wholesale and retail trade, energy-intensive industries, and commercial real estate. Manufacturing overall saw moderate tightening, while non-financial services experienced little change. Banks anticipate stable or slightly tighter standards in most sectors during the first half of 2026.
Trade Policy Uncertainty:
Nearly half of surveyed banks reported significant exposure to trade-related uncertainty, which contributed to tighter credit standards and dampened corporate loan demand. Banks expect this influence to persist in 2026.
Outlook:
Overall, euro area banks remain cautious, balancing modestly rising loan demand with higher perceived risks. While housing loans see some easing, corporate and consumer credit are likely to face further tightening in early 2026, reflecting ongoing concerns about economic conditions, risk management, and regulatory requirements.
