Euro-area banks tighten lending as loan demand falls

Euro-area banks tightened lending standards for businesses and consumer credit in the third quarter of 2026, while demand for loans fell across all categories, the European Central Bank said on Tuesday. Banks expect further tightening in the current quarter, particularly for loans to households.

The ECB’s quarterly survey found that a net 9% of banks tightened standards for loans to firms, exceeding the 5% they had expected in the previous survey. A net 14% tightened standards for consumer credit and other household lending. Standards for housing loans were unchanged, although banks had anticipated a slight tightening.

Banks cited heightened perceptions of risk and reduced risk tolerance as the main reasons for tighter criteria. Some also pointed to pressure from geopolitical uncertainty and energy developments. Loan terms and conditions tightened across all categories, mainly because of higher interest rates, and banks reported a net increase in rejected applications for every borrower group.

Demand for business loans fell by a net 6%, reversing banks’ expectation of an increase. Higher interest rates were the main drag, with weaker demand for fixed investment among small and medium-sized firms also weighing on borrowing. Housing-loan demand dropped by a net 27%, as higher rates, weaker consumer confidence and poorer housing-market prospects discouraged applicants. Consumer-credit demand edged down by a net 2%.

Looking ahead, banks expect standards to tighten further for businesses and more sharply for housing loans and consumer credit. They forecast a stronger fall in household borrowing demand in the fourth quarter, while demand for business loans is expected to remain broadly unchanged.

The survey also found that banks anticipate a gradual, sustained rise in borrowing to finance artificial-intelligence infrastructure, particularly data centres. Banks said this lending is more likely to target infrastructure providers than software developers or businesses adopting AI. Most have not yet introduced specific quantitative criteria for assessing AI-related lending.

The ECB surveyed 159 euro-area banks between 21 September and 6 October. The results describe changes in the third quarter and banks’ expectations for the fourth.