| Actual | Previous | |
| Net Tighter Credit Standards | 7% | 4% |
Highlights
The fourth-quarter 2025 bank lending survey reveals a cautious and increasingly selective euro-area banking system. An unexpected tightening of credit standards for firms signals heightened risk aversion, driven by fragile economic expectations and reduced bank risk tolerance. This tightening, concentrated in Germany and France, contrasts with stable conditions in Spain and Italy and suggests uneven transmission of financial conditions across the euro area.
What stands out is the growing disconnect between supply and demand. Firms' loan demand continued to rise modestly, fuelled less by productive investment and more by short-term needs such as working capital, refinancing, and mergers and acquisitions. Fixed investment remained subdued, pointing to persistent uncertainty about the medium-term outlook.
Household conditions show that housing credit conditions eased slightly despite banks' earlier expectations, reflecting competitive pressures and improved housing market prospects. Consumer credit, however, tightened further, with weakening consumer confidence suppressing demand despite marginal interest-rate support.
Tighter overall lending terms, rising rejection rates, and banks' expectations of further tightening into early 2026 suggest that credit growth will remain constrained. This environment risks reinforcing a low-investment equilibrium, where caution among banks and borrowers alike slows the pace of economic recovery.
Definition
The European Central Bank's quarterly lending survey of around one hundred and forty banks aims to enhance the Eurosystem's knowledge of financing conditions in the Eurozone and so help the central bank to assess monetary and economic developments as an input into monetary policy decisions. The headline number refers to the net percentage of banks that have tightened their credit standards on lending to enterprises. It is designed to complement existing statistics on retail bank interest rates and credit with information on supply and demand conditions in the euro area credit markets and the lending policies of euro area banks. The survey addresses issues such as credit standards for approving loans as well as credit terms and conditions applied to enterprises and households. It also asks for an assessment of the conditions affecting credit demand.
Description
Particularly in the wake of the Great Recession and the Covid-19 crisis, changes in financial market conditions can have a major say in central bank policy, and hence, the level of asset prices. The main focus is the net percentage of reporting banks indicating tightening credit standards or positive loan demand with regards to enterprises, house purchase and consumer credit. An unwanted tightening of standards or undesired fall in lending could prompt a softer monetary stance from the ECB, potentially entailing lower official short-term interest rates and possible efforts to reduce the cost of longer-term loans.