Euro area banks tightened business lending standards by a net 9% in the third quarter of 2026, exceeding their earlier expectations, the European Central Bank said in a survey published Tuesday.
Banks had expected a net 5% to tighten, the central bank said in its “October 2026 euro area bank lending survey,” published Oct. 27. Banks also reported falling business loan demand after previously expecting an increase.
The central bank surveyed 159 banks between Sept. 21 and Oct. 6, with all responding. The questions covered changes during the third quarter and expectations for the fourth quarter, alongside questions covering longer periods.
The survey measures net balances of banks reporting changes, rather than changes in loan volumes. For lending standards, the balance subtracts the share reporting easier approval criteria from the share reporting tighter criteria.
Banks attributed tighter business lending standards mainly to greater perceived risks and less willingness to take risks. Some linked growing pressure to geopolitical uncertainty and energy developments.
Housing loan approval criteria were unchanged on balance, while consumer credit standards tightened by a net 14%, exceeding banks’ expectations, the central bank said. Banks reported that higher interest rates tightened actual contract terms across all loan categories.
Banks expected further tightening for businesses and tightening for housing and consumer loans in the fourth quarter. They also reported increases in rejected applications across all borrower groups, particularly consumer credit.
Business loan demand fell by a net 6%, against expectations for a net 4% increase and following a net 3% rise in the second quarter, the central bank said.
Banks identified interest rates as the main drag on business borrowing. Weaker demand for investment among smaller companies and greater use of alternative financing also contributed, while inventory and working capital needs supported demand.
Housing loan demand fell by a net 27%, compared with a net 15% decline in the previous quarter and an expected net 12% drop, the central bank said. Banks attributed the decline mainly to higher interest rates, followed by weaker consumer confidence and housing market prospects.
The decline remained well below the peak during the previous interest rate increase cycle. Consumer credit demand fell by a net 2%, against expectations for no change.
Banks expected fourth-quarter demand balances of minus 36% for housing loans, minus 14% for consumer credit and minus 1% for business loans, the central bank said.
Access to funding from retail customers deteriorated the most since the series began in 2011, although the deterioration remained moderate. Banks expected access to all funding sources to worsen over the following three months.
Most banks had yet to introduce specific numerical criteria for assessing lending related to artificial intelligence. Several expected borrowing to finance digital infrastructure, particularly data centres, to increase gradually, with lending focused more on infrastructure providers than software developers or businesses adopting the technology.
