Eurozone: Tighter Corporate Credit Standards Continues and More Loans Applications Rejected
Given the early January timing of the survey, which far from fully embraced the added uncertainty caused by President Trump’s trade threats, it was still hardly a surprise despite that the reported net tightening credit standards merely accentuates trends in the three previous Bank Lending Surveys (BLS). This updated BLS therefore echoes what we have seen in other ECB surveys despite somewhat less soft actual credit dynamics seen of late. At least as far as firms and consumer seeking credit are concerned, the BLS again underscores that banks are rationing, if not out rightly curbing, the supply of credit (Figure 1; the BLS noted a further net increase in the share of rejected loan applications). As such, the latest BLS both corroborates and continues an ever worrying pattern, namely weakness in corporate credit demand and supply and which suggest ever more clearly that banks are increasing lending standards to firms, especially those exposed to the export sectors. The question is whether this is even more tangible evidence of the threat posed by U.S. tariffs, alongside global uncertainties, is becoming more of a reality and that the ECB therefore needs to reassess its complacent view of the backdrop, particularly regarding credit dynamics the sluggishness of which we see as being driven by tight(er) financial conditions.
Figure 1: BLS Sees Banks Reject More Loan Applications
Source: ECB, % balance
The (latest) January 2026 Bank Lending Survey (BLS), saw EZ banks reported an unexpected net tightening of credit standards (banks’ internal guidelines for loan approval criteria) for loans or credit lines to enterprises in last quarter. Moreover, banks reported only a small net easing of credit standards for loans to households for house purchase (net percentage of -2%), whereas credit standards for consumer credit and other lending to households tightened further. Notably, for firms, this additional surpassed the expectations reported by banks in the previous survey round and reflected ongoing and perhaps deeper concerns about the outlook for firms and the broader economy, as well as banks’ lower risk tolerance. Banks indicated a small net easing of credit standards for housing loans, which they had not expected, and a further net tightening of credit standards for consumer credit, which was above the expectations they had reported in the prior quarter. For housing loans, competition had an easing impact on credit standards, while risk perceptions had a tightening impact. Banks’ lower risk tolerance and higher risk perceptions were the main drivers of the tightening for consumer credit. For the first quarter of 2026, banks expect a moderate further net tightening of credit standards for firms, a slight tightening for housing loans and a more marked tightening for consumer credit.
More troubling, banks reported a further net increase in the share of rejected loan applications across all loan categories, particularly for firms albeit with a less marked net increase for consumer credit. Even so, the extent of rejected loans is well above recent and ore-pandemic averages (Figure 1). Moreover, the net increase was larger than in the previous quarter and larger than the average reported since the beginning of 2024 across all loan categories. For housing loans, it was also the first net increase since the first quarter of 2024. The ECB reaction on Thursday to all of these monetary updates will be interesting – to put it mildly!
Last time around the tighter credit conditions, let alone the increase in rejected loan applications Was largely ignored. It may do again this week, but the thrust of the BLS, including an acknowledgment of rising effective interest rates, merely reinforces our view of tightening financial conditions. Indeed, it is worth noting that while banks reported only a moderate rise in credit standards for lending to banks, the fact that more and more loan applications are being rejected is surely the ultimate sign of reduced credit supply!
I,Andrew Wroblewski, the Senior Economist Western Europe declare that the views expressed herein are mine and are clear, fair and not misleading at the time of publication. They have not been influenced by any relationship, either a personal relationship of mine or a relationship of the firm, to any entity described or referred to herein nor to any client of Continuum Economics nor has any inducement been received in relation to those views. I further declare that in the preparation and publication of this report I have at all times followed all relevant Continuum Economics compliance protocols including those reasonably seeking to prevent the receipt or misuse of material non-public information.