Euro Area Banks Tighten Credit Standards for Firms and Consumer Credit

The European Central Bank reported on 27 October 2026 that euro area banks further tightened credit standards for loans to enterprises and consumer credit in the third quarter of 2026, while loan demand declined across all segments, according to the October 2026 euro area bank lending survey.

Euro area banks reported a further net tightening of credit standards, defined in the survey as banks’ internal guidelines or loan approval criteria, for loans or credit lines to enterprises in the third quarter of 2026, at a net percentage of 9% of banks. The net tightening for firms surpassed the 5% tightening banks had expected in the previous survey round. Credit standards for loans to households for house purchase were unchanged at a net 0%, although banks had expected a slight net tightening, while standards for consumer credit and other lending to households tightened further at a net 14%, a result that exceeded banks’ expectations and owed mainly to lower risk tolerance and heightened risk perceptions. The ECB reported that heightened risk perceptions and banks’ reduced risk tolerance remained the main drivers of tighter credit standards, with some banks reporting increasing pressure as a result of geopolitical uncertainty and energy developments.

Banks’ overall terms and conditions, meaning the actual terms and conditions agreed in loan contracts, tightened for all loan segments, driven mainly by higher interest rates. Banks also reported a net increase in the share of rejected loan applications for all borrower groups, with the net increase higher for consumer credit than for loans to firms and housing loans. For the fourth quarter of 2026, banks expect credit standards to tighten further for firms and to tighten significantly for both housing loans and consumer credit.

Loan Demand Declines Across All Segments

In the third quarter of 2026, euro area banks reported a net decrease in demand for loans or credit lines to firms, at a net percentage of -6%. The decline contrasted with banks’ expectations of an increase of 4% in the previous survey round and followed a small net increase of 3% in the second quarter. The ECB reported that loan demand was dampened primarily by the general level of interest rates, while weaker demand for fixed investment among small and medium-sized enterprises and the move towards alternative sources of finance also weighed slightly on demand. Some banks reported that uncertainty regarding geopolitical and energy developments continued to suppress corporate loan demand, while upward pressure came from demand for inventories and working capital.

Banks reported a strong net decrease in demand for housing loans, at a net -27%, a more pronounced decline than the -15% recorded in the second quarter and beyond the -12% banks had expected in the previous survey round. Increases in interest rates were the main driver of the decline, followed by falling consumer confidence and worsening housing market prospects. The ECB stated that the contribution from interest rates is consistent with policy rate changes being transmitted smoothly to financing conditions, and that although substantial, the decline in demand remains well below the peak recorded during the previous rate-hiking cycle.

Demand for consumer credit and other lending to households fell slightly, at a net -2%, contrasting with banks’ expectations in the second quarter that demand would remain unchanged at 0%. The ECB reported that developments in interest rates and lower consumer confidence were the main factors behind the decline, followed by subdued spending on durable goods. For the fourth quarter of 2026, banks expect more significant declines in demand for housing loans (-36%) and consumer credit (-14%), while they anticipate that demand for loans to firms will remain broadly unchanged (-1%).

Funding Conditions, AI Lending and Digital Assets

In a dedicated question on new lending to finance firms’ adoption or development of artificial intelligence, banks indicated that they are still adapting their lending practices to the growing use of these technologies. Most reported that they had not yet introduced specific quantitative criteria for assessing AI-related lending within their credit standards, while a small number noted that AI adoption and its associated risks increasingly feature in qualitative borrower assessments, with information technology firms subject to the closest scrutiny. Several banks indicated that they expect a gradual but sustained increase in loan demand to finance digital infrastructure, particularly data centres. Banks also reported that their current and prospective AI-related lending is more likely to target infrastructure providers than software developers or firms adopting AI, with this focus expected to become more pronounced over the coming months.

Euro area banks’ access to retail funding, debt securities and money markets decreased further in the third quarter of 2026, while access to securitisations remained broadly unchanged. The ECB reported that the deterioration in access to retail funding, although still moderate, was the largest since the beginning of the series in 2011 and slightly higher than the previous peak in the third quarter of 2023, driven by both short- and long-term retail funding. Banks expect access to funding across all sources to deteriorate further over the next three months.

Banks reported that the reduction in the ECB’s monetary policy asset portfolio had a mildly negative impact on their market financing conditions and liquidity positions over the last 12 months, while prompting a further increase in their holdings of euro area sovereign bonds. The impact on bank profitability was slightly positive, with higher net interest income partially offset by small capital losses. Banks expect these effects to persist over the coming 12 months, and they reported a tightening impact on lending conditions across all loan categories, which they expect to increase over the next 12 months.

Euro area banks reported a net tightening impact of non-performing loan ratios and other credit quality indicators on their credit standards for loans to firms, housing loans and consumer credit in the third quarter of 2026, mainly reflecting higher risk perceptions. In the fourth quarter of 2026, banks expect credit quality to have a further tightening impact on credit standards for loans to firms and for consumer credit.

In response to a new question on the impact of digital assets, euro area banks reported that digital assets contributed slightly positively to their business strategy over the past 12 months, and they assessed the impact on the broader financial situation over the same period as neutral. For the next 12 months, banks expect digital assets to have an increasingly positive impact on their business strategy and a negative influence on their retail funding business. Digital assets had a neutral impact on credit standards over the past 12 months and are expected to ease credit standards for housing loans over the next 12 months.

The quarterly bank lending survey was developed by the Eurosystem to improve its understanding of bank lending behaviour in the euro area. The results reported in the October 2026 survey relate to changes observed in the third quarter of 2026 and changes expected in the fourth quarter of 2026, unless otherwise indicated. The October 2026 survey round was conducted between 21 September and 6 October 2026, with 159 banks surveyed and a response rate of 100%. According to the survey’s notes, net percentages are defined as the difference between the sum of the percentages of banks reporting a tightening, or an increase in demand, and the sum of the percentages of banks reporting an easing, or a decrease.