(Feb 3): Eurozone banks unexpectedly tightened corporate credit standards at the end of 2025, raising doubts about investment and economic activity before the European Central Bank (ECB) sets interest rates this week.
“Concerns about the outlook for firms and the broader economy, as well as banks’ lower risk tolerance, contributed” to the move, the ECB said on Tuesday in its fourth-quarter bank lending survey.
Asked about the impact of changes in trade policies and related uncertainty, almost half of the banks assessed their exposure as “important”, it said. They expect another slight tightening of standards for companies in the first quarter of 2026.
Lending trends help the ECB gauge how efficiently monetary policy is reaching the economy. While officials concluded in December that pass-through of rate cuts remained smooth, they called for close monitoring amid worries about a sudden financial-market correction.
A blog last week by four ECB economists found the recent credit recovery to be more gradual than in past episodes and highlighted the key role bank lending plays in supporting activity in the real economy.
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The region has so far proved resilient to headwinds like tariffs, expanding 0.3% in the fourth quarter. That topped expectations and supports the case to keep borrowing costs unchanged again on Thursday. But jolts in US President Donald Trump’s trade policies remain a risk.
Tuesday’s report also showed another small increase in companies’ appetite for credit.
“Firms’ loan demand was primarily driven by an increase in demand for inventories and working capital and other financing needs, whereas fixed investment continued to make an overall neutral net contribution,” it said.
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For housing, the ECB reported another increase in credit demand and a slight easing of lending standards.
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