Euro area banks tightened their lending rules for businesses and households in the second quarter of 2026 as they became more cautious about risks, according to the European Central Bank’s July 2026 bank lending survey.
Banks reported a “moderate” net tightening of credit standards — their internal guidelines for approving loans — for loans or credit lines to companies, with a net 7% of banks tightening, the ECB disclosed in a release on Tuesday. C
redit standards also tightened for household borrowing, with net tightening of 9% for home loans and 12% for consumer credit and other household lending, it added.
Perceived risks to the economic outlook and lower risk tolerance were the main reasons banks gave for tightening lending rules to firms, alongside attention to risks linked to geopolitical and energy developments.
Banks cited similar factors for tightening credit standards for housing loans and consumer credit.
Banks also said the terms and conditions written into loan contracts tightened across all loan segments, driven mainly by higher interest rates.
The share of rejected loan applications rose for all borrower groups, with a larger increase reported for consumer credit than for business and housing loans.
Loan demand diverges between firms and households
Demand for loans or credit lines from firms rose slightly in the second quarter, with a net 3% of banks reporting an increase, according to the ECB survey.
Banks linked the rise to higher needs for inventories and working capital, fixed investment demand from large firms, and financing related to debt refinancing and restructuring.
Housing loan demand fell markedly, with a net -15% reported for the quarter, the ECB said. Banks pointed to weaker consumer confidence and changes in interest rates as the main drags, alongside weaker housing market prospects.
Demand for consumer credit and other household borrowing softened, with a net -2% of banks reporting a decline, the survey said. Lower consumer confidence was the main driver, followed by subdued spending on durable goods and changes in interest rates.
For the third quarter of 2026, banks expect further tightening of credit standards across all loan categories, the ECB said. They also expect housing loan demand to fall further, while demand for consumer credit is expected to be unchanged.
Credit standards tightened across most sectors in the first half of 2026, with the strongest tightening reported in parts of manufacturing exposed to energy-related and geopolitical developments — including the car industry and energy-intensive manufacturing.
