1 Overview of results

In the January 2025 bank lending survey (BLS), euro area banks reported a renewed net tightening of credit standards for loans or credit lines to enterprises in the fourth quarter of 2024 (net percentage of banks of 7%; see Overview table).^[1] The renewed net tightening follows unchanged credit standards for loans to firms in the third quarter of 2024 and is the most pronounced net tightening since the third quarter of 2023. It was driven by higher perceived risks related to the economic outlook and by banks’ lower risk tolerance. This was mainly owing to banks in Germany and France in an environment of increased political uncertainty, whereas credit standards eased in Italy. The area-wide net tightening was higher than expected by banks in the previous survey round (4%). For the first quarter of 2025, banks expect a further net tightening of credit standards for loans to firms (10%, slightly above the historical average).

Banks reported broadly unchanged credit standards for loans to households for house purchase after three quarters of easing, and a further net tightening for consumer credit (net percentages of 1% and 6%; see Overview table). For housing loans, while competition from other banks had an easing impact on credit standards, banks’ risk tolerance and risk perceptions had a tightening impact. Across the largest euro area countries, banks in France reported a net easing while banks in Germany and Italy reported a net tightening. The broadly unchanged credit standards for euro area housing loans contrasts with the strong net easing that banks had expected in the previous quarter (-12%). For credit standards on consumer credit and other lending to households, risk perceptions and banks’ risk tolerance were again the main drivers of the net tightening, reflecting concerns about deteriorating asset quality in this loan segment. Credit standards for consumer credit tightened in Germany, France and Spain, while remaining unchanged in Italy. The tightening was larger than banks had expected in the previous quarter (3%) and was around the historical average (5%). For the first quarter of 2025, banks expect credit standards for housing loans and consumer credit to tighten (2% and 7% respectively).

Firms’ net demand for loans continued to increase slightly in the fourth quarter of 2024, while remaining weak overall (net percentage of 3%; see Overview table). The small increase in loan demand was driven mainly by declining interest rates, with fixed investments having a still-muted impact after a small positive contribution in the previous quarter. The overall muted demand reflects the continued weak economic situation, especially in some investment-intensive sectors of the economy. Some banks also referred to economic and (geo-)political uncertainties as a dampening factor for firms’ loan demand. Firms’ inventories and working capital made a small positive contribution. While banks in Germany, Spain and Italy reported an increase in loan demand, banks in France reported a net decrease. For the first quarter of 2025, banks expect broadly unchanged loan demand (-1%).

Net demand for housing loans continued to increase strongly, while consumer credit demand increased slightly (net percentages of 42% and 2%; see Overview table). The net increase in housing loan demand was driven mainly by declining interest rates and, to a lesser extent, by housing market prospects. It follows a similarly strong increase in the previous quarter (39%) and was in line with banks’ expectations in the previous quarter (44%). It was also broad based across euro area countries, substantiating still further the signs of a rebound from the strong declines in housing loan demand over the tightening cycle. Consumer credit demand was supported by declining interest rates, whereas consumer confidence, spending on durables and the use of alternative finance from other banks and non-banks dampened demand. The net increase in demand for consumer credit was lower than that expected by banks in the previous quarter (11%). For the first quarter of 2025, banks expect demand in both categories to increase further (31% for housing loans and 12% for consumer credit).

Banks’ overall credit terms and conditions remained broadly unchanged for loans to firms and consumer credit, while they eased strongly for housing loans. For loans to firms, the easing impact of lower lending rates and narrower margins on average loans was offset by stricter collateral requirements and other terms and conditions, such as loan covenants, to compensate for higher perceived risks. For housing loans, lending rates and margins on average loans were the main drivers of the net easing. For consumer credit terms and conditions, while lending rates had an easing impact, loan margins widened somewhat.

Banks reported a net increase in the share of rejected applications for loans to firms and consumer credit, while they reported a small net decrease for housing loans.

The January 2025 survey contained several ad hoc questions.

• Euro area banks’ access to funding worsened somewhat for retail funding, money markets and debt securities in the last quarter of 2024. Over the next three months, banks expect access to funding to remain broadly unchanged across all market segments.
• In response to new regulatory or supervisory requirements in 2024, euro area banks reported a net increase in their required capital as well as increases in their liquid and risk-weighted assets. Banks also reported a net tightening impact on credit standards stemming from the requirements, especially for loans to firms, with further, substantial net tightening expected for 2025.
• Euro area banks reported a net tightening impact of NPL ratios and other indicators of credit quality on their credit standards for loans to enterprises and consumer credit in the second half of 2024, the largest impact since the height of the pandemic and the period of balance sheet clean-up in 2014-17. The net tightening impact on terms and conditions was more moderate. Higher perceived risks and, to a lesser extent, lower risk tolerance were the most important factors for banks reporting a tightening impact of credit quality on lending conditions. By contrast, for housing loans credit quality had a neutral impact on credit standards and terms and conditions. For the first half of 2025, euro area banks expect a further tightening impact of credit quality on lending conditions for loans to firms and consumer credit and a broadly neutral impact on lending conditions for housing loans.
• Banks’ credit standards tightened further in all main economic sectors in the second half of 2024, especially in commercial real estate (CRE), wholesale and retail trade, construction and energy-intensive manufacturing. Banks reported a net decrease in loan demand in CRE, construction and energy-intensive manufacturing and broadly unchanged demand in the other sectors, except for some sub-categories of services where there was a small increase. For the first half of 2025, banks expect a further net tightening of credit standards in most economic sectors, except for services. They expect muted loan demand in all sectors but residential real estate (RRE), for which they expect a moderate increase.
• Banks reported that the decline in excess liquidity held with the Eurosystem had a neutral impact on bank lending conditions in the second half of 2024. They expect similar effects in the first half of 2025.

2 Loans to enterprises

2.1 Credit standards showed renewed net tightening

Euro area banks reported a renewed net tightening of credit standards for loans or credit lines to enterprises in the fourth quarter of 2024 (net percentage of banks of 7%; see Chart 1 and Overview table).^[3] The net tightening followed unchanged credit standards for loans to firms in the third quarter and is the most pronounced net tightening since the third quarter of 2023. It was higher than banks had expected in the previous survey round (4%). The net tightening was driven mainly by banks in Germany and France in an environment of increased political uncertainty, whereas credit standards eased in Italy. Compared with historical averages, the net percentage was slightly lower than the average since 2003 (9%) and above the average since 2014 (3%).^[4] Credit standards tightened both for loans to small and medium-sized enterprises (SMEs) and for loans to large firms (net percentages of 9% and 7% respectively; see Chart 2). Across maturities, banks reported a net tightening, especially for long-term loans (8%), whereas the tightening was smaller for short-term loans (3%).

Higher perceived risks and banks’ lower risk tolerance had the largest tightening impact on credit standards (see Chart 1 and Table 1). The net tightening impact of banks’ risk perceptions was due mainly to concerns about the economic outlook and borrowers’ creditworthiness. This is consistent with higher risk-weighted assets related to supervisory requirements (see Section 5.2), the net tightening impact of the asset quality of corporate loans on banks’ credit standards (see Section 5.3) and stricter credit standards in the main economic sectors (see Section 5.4). Banks’ cost of funds and balance sheet situation and competition had a broadly neutral impact, similar to previous quarters and despite the decrease in interest rates and the recently weakening but ongoing foreign inflows of money, consistent with the still-tight level of interest rates. Among the four largest euro area countries, higher risk perceptions and lower risk tolerance were reported mainly by banks in Germany and France, while banks’ risk tolerance was reported as having an easing impact in Italy.

Chart 1

Changes in credit standards applied to the approval of loans or credit lines to enterprises, and contributing factors

(net percentages of banks reporting a tightening of credit standards and contributing factors)

Chart 2

Changes in credit standards applied to the approval of loans or credit lines to SMEs and large enterprises, and contributing factors

(net percentages of banks reporting a tightening of credit standards and contributing factors)

In the first quarter of 2025, euro area banks expect a further net tightening of credit standards for loans to firms (net percentage of 10%), slightly above the historical average. Banks expect a smaller net tightening for loans to SMEs (7%) than for loans to large firms (10%) and a smaller net tightening for short-term loans (5%) than for long-term loans (11%).

2.2 Lower lending rates were broadly offset by stricter collateral requirements

Banks’ overall terms and conditions for new loans to enterprises remained broadly unchanged (net percentage of -1%; see Chart 3 and Table 2), as lower lending rates were broadly offset by stricter collateral requirements.^[5] The easing impact of lower lending rates and narrower margins on average loans (defined as the spread over relevant market reference rates) was broadly offset by stricter collateral requirements and other terms and conditions, such as loan covenants and the size of the loan or credit line, to compensate for higher perceived risks. Margins on riskier loans remained broadly unchanged. Across the four largest euro area economies, German and French banks reported tighter overall terms and conditions related to stricter collateral requirements, loan covenants and the size of the loan or credit line. By contrast, terms and conditions eased in Spain and Italy owing to lower lending rates and narrower loan margins. Overall terms and conditions eased for loans to large firms but tightened slightly for loans to SMEs (net percentages of -3% and 2% respectively; see Chart 4). In both segments of corporate loans, lending rates and narrower margins on average loans had an easing impact, while collateral requirements and other terms and conditions had a tightening impact.

Chart 3

Changes in terms and conditions on loans or credit lines to enterprises

(net percentages of banks reporting a tightening of terms and conditions)

Higher perceived risks and banks’ lower risk tolerance were the main tightening factors, while competitive pressures had an easing impact (see Table 3). The general economic outlook and the industry-or-firm-specific situation were the main reasons for banks’ higher perceived risks, as reported by banks in Germany and France. By contrast, competitive pressures, especially from other banks, had an easing impact on terms and conditions.

Chart 4

Changes in terms and conditions on loans or credit lines to SMEs and large enterprises

(net percentages of banks reporting a tightening of terms and conditions)

2.3 Rejection rates continued to increase

Banks reported a net increase in the share of rejected loan applications for firms (net percentage of 8%; see Chart 5). This net increase was the largest since the fourth quarter of 2023. As in the previous quarter, it was larger for loans to SMEs (net percentage of 10%, the third quarter in a row seeing an acceleration in rejections) than for loans to large firms (7%), pointing to higher credit risks for smaller firms. The further increase in the share of rejected loan applications was driven mainly by developments in Germany and France, with a substantial increase in the net share of rejected loan applications for German SMEs. By contrast, Spanish banks reported an unchanged share of rejected loan applications, and Italian banks reported a further net decrease.

Chart 5

Changes in the share of rejected loan applications for enterprises

(net percentages of banks reporting an increase)

2.4 Net demand for loans increased slightly, remaining weak overall

Firms’ net demand for loans continued to increase slightly in the fourth quarter of 2024, while remaining weak overall (net percentage of 3%; see Chart 6).^[6] The small increase in loan demand follows a similar net increase in the previous quarter and a series of net decreases from the fourth quarter of 2022 until the second quarter of 2024. The development is consistent with overall weak dynamics in bank lending to euro area firms. While banks in Germany, Spain and Italy reported a net increase in loan demand, banks in France reported a decrease. The increase in demand was broadly in line with what banks had expected in the previous quarter (net percentage of 4%). Across loan segments, banks reported broadly unchanged loan demand from large firms and a slight net decrease from SMEs (net percentages of 1% and -2% respectively, see Chart 7).

Chart 6

Changes in demand for loans or credit lines to enterprises, and contributing factors

(net percentages of banks reporting an increase in demand, and contributing factors)

Chart 7

Changes in demand for loans or credit lines to SMEs and large enterprises, and contributing factors

(net percentages of banks reporting an increase in demand, and contributing factors)

Loan demand was mainly supported by declining interest rates, with fixed investment having a still-muted impact after a small positive contribution in the previous quarter (see Chart 6 and Table 4). The overall muted development reflects the continued weak economic situation, especially in some investment-intensive sectors of the economy like manufacturing (see Section 5.4), which is also reflected in recent output PMI (Purchasing Managers’ Index) developments. Some banks also referred, within “other factors”, to economic and (geo-)political uncertainties as a dampening factor for firms’ loan demand. Firms’ inventories and working capital made a small positive contribution. Among the four largest euro area economies, banks in Germany, Spain and Italy referred to the supportive impact of declining interest rates and inventories, as well as working capital financing needs, on loan demand. For fixed investment, the impact was negative for Germany, whereas banks in Spain, France and Italy reported that fixed investment had a positive impact on corporate loan demand. Across loan segments, the decline in lending rates and, for loans to SMEs, the financing needs of inventories and working capital, were reported to have a strengthening impact on demand for loans to SMEs and large firms (see Chart 7).

Banks expect broadly unchanged demand for loans to firms for the first quarter of 2025 (net percentage of -1%). They expect the same for loans to large enterprises and to SMEs (net percentages both at -1%), and broadly unchanged demand for short-term and long-term loans (net percentages of 1% and 0% respectively).

3 Loans to households for house purchase

3.1 Credit standards were broadly unchanged

Euro area banks reported broadly unchanged credit standards for loans to households for house purchase (net percentage of banks at 1%; see Chart 8 and Overview table). This follows three consecutive quarters of net easing of credit standards, mostly in France, after the large net tightening seen throughout 2022 and 2023. The broadly unchanged credit standards for euro area housing loans contrasts with the expectation of strong net easing that banks reported in the previous quarter (-12%).^[7] The development was heterogeneous across euro area countries. Among the four biggest countries, banks in France reported a net easing, whereas banks in Germany and Italy reported a net tightening and banks in Spain reported unchanged credit standards on housing loans.

Chart 8

Changes in credit standards applied to the approval of loans to households for house purchase, and contributing factors

(net percentages of banks reporting a tightening of credit standards, and contributing factors)

Competition from other banks was the main easing factor of credit standards for housing loans, while banks’ risk tolerance and risk perceptions had a tightening impact (see Chart 8 and Table 5). The net easing impact of competition, as in previous quarters, was driven mainly by banks in France.^[8] Competition from other banks also contributed to a small net easing in Germany, together with banks’ access to market financing (within “cost of funds and balance sheet constraints”). On the other hand, banks’ risk tolerance had a net tightening impact at the euro area level, driven mainly by banks in Germany and Italy. Also, banks’ risk perceptions had a slight net tightening impact, driven mainly by banks in Germany and Italy, connected in both cases to the general economic outlook and, in the case of German banks, to housing market prospects.

In the first quarter of 2025, euro area banks expect credit standards for housing loans to tighten slightly (net percentage of 2%). Across the four largest euro area economies, banks in France and Germany expect a net tightening, whereas Italian banks expect unchanged credit standards on housing loans and Spanish banks expect an easing.

3.2 Terms and conditions continued to ease strongly

Banks’ overall credit terms and conditions eased strongly for housing loans in the fourth quarter of 2024 (net percentage of -14%; see Chart 9 and Table 6). As in the previous two quarters, the net easing was driven mainly by a substantial contribution from lower lending rates and narrower margins on average loans, in line with the decreases in bank lending rates on mortgages since their peak in the fourth quarter of 2023. The net percentage for overall terms and conditions was one of the lowest since the start of the series in 2015.^[9] Among the four largest countries, banks in Germany, Spain and Italy reported an easing while banks in France reported unchanged overall terms and conditions. As in the previous quarter, for margins on riskier loans, euro area banks reported only a small net easing, whereas collateral requirements contributed to a small net tightening of terms and conditions on new loans.

Chart 9

Changes in terms and conditions on loans to households for house purchase

(net percentages of banks reporting a tightening of terms and conditions)

Competition was the main driver of the net easing of overall terms and conditions (see Table 7). This impact was reported by banks in all the four largest euro area countries. Euro area banks’ cost of funds and balance sheet constraints had a broadly neutral impact, after the easing impact in the previous quarter related to banks’ market financing conditions in Spain and Italy. By contrast, banks’ risk perceptions and risk tolerance had a small net tightening impact, driven mainly by German banks.

3.3 Rejection rates remained broadly unchanged

Banks reported a slight decrease in the share of rejected applications for housing loans (net percentage of -3%; see Chart 10). This followed a broadly unchanged share in the third quarter of 2024 and a small decrease in the second quarter of 2024, pointing to a further stabilisation after the large cumulative net increase in the share of rejected applications between the second quarter of 2022 and the first quarter of 2024. Among the four largest euro area economies, the share of housing loan rejections decreased in France, while it remained unchanged in Germany, Spain and Italy.

Chart 10

Changes in the share of rejected loan applications for households

(net percentages of banks reporting an increase)

3.4 Net demand for loans increased strongly

For the second quarter in a row, banks reported a strong net increase in the demand for housing loans (net percentage of 42%, see Chart 11 and Overview table).^[10] The strong net increase in demand for housing loans further substantiated the signs of a rebound from the strong declines in housing loan demand over the tightening cycle, with negative net percentages observed between the third quarter of 2022 and the first quarter of 2024. The net increase was slightly above the strong increase observed in the previous quarter (39%) and the highest net percentage increase since the second quarter of 2015 (42%). It was broadly in line with banks’ expectations in the third quarter of 2024 (44%) and was broad based across euro area countries.

Chart 11

Changes in demand for loans to households for house purchase, and contributing factors

(net percentages of banks reporting an increase in demand, and contributing factors)

Declining interest rates were the main factor having a positive impact on housing loan demand, while housing market prospects also played a role (see Chart 11 and Table 8). The positive impact of the decline in interest rates is broadly consistent with the moderation of euro area mortgage rates since the fourth quarter of 2023 and was reported by banks across the four largest euro area countries. Euro area banks also indicated that housing market prospects had a positive impact, albeit one which was smaller than the previous quarter. The impact of consumer confidence turned slightly negative, mainly because of a drop in France. Banks reported a positive impact in Germany and Italy and a neutral impact in Spain.

In the first quarter of 2025, banks expect a further strong – albeit smaller – increase in housing loan demand (net percentage of banks of 31%). If realised, this would constitute the third consecutive net increase above 30%. The ongoing recovery of housing loan demand from the low levels reached in 2022 and 2023 is expected by banks in all four largest euro area economies.

4 Consumer credit and other lending to households

4.1 Credit standards tightened further

Banks reported a further net tightening of credit standards on consumer credit and other lending to households (net percentage of 6%; see Chart 12 and Overview table). The net percentage remained the same as in the preceding quarter and was, for the third time in a row, higher than had been expected by the banks in the previous quarter (3%). The net tightening was around the historical average of credit standards for consumer credit since 2003 (5%) and above the historical average since 2014 (3%).^[11] Among the four largest euro area economies, credit standards for consumer credit tightened in Germany, France and Spain, whereas banks in Italy reported unchanged credit standards.

Chart 12

Changes in credit standards applied to the approval of consumer credit and other lending to households, and contributing factors

(net percentages of banks reporting a tightening of credit standards, and contributing factors)

Higher risk perceptions and banks’ lower risk tolerance remained the main drivers of the net tightening of credit standards for consumer credit (see Chart 12 and Table 9). The economic outlook and borrowers’ creditworthiness were the main reasons for the higher risk perceptions, reflecting concerns about deteriorating asset quality in this loan segment. Competition from other banks and non-banks as well as banks’ cost of funds and balance sheet constraints had a broadly neutral impact.

In the first quarter of 2025, euro area banks expect credit standards for consumer credit and other lending to households to tighten further (net percentage of 7%). Across the four largest euro area economies, banks in Germany, France and Italy expect a net tightening, while banks in Spain expect unchanged credit standards.

4.2 Terms and conditions remained broadly unchanged

Banks’ overall terms and conditions applied when granting consumer credit and other lending to households remained unchanged in net terms in the fourth quarter of 2024 (net percentage of 0%, see Chart 13 and Table 10). This followed a continued net tightening of overall terms and conditions since the second quarter of 2022.^[12] Lending rates had a substantial easing impact, whereas margins on average loans remained broadly unchanged and margins on riskier loans widened slightly. Across the four largest euro area economies, overall terms and conditions tightened in France, remained unchanged in Germany and eased in Spain and Italy. Banks in all the four countries reported an easing impact from declining lending rates, although lending margins widened in Italy, especially on riskier loans.

Higher perceived risks and banks’ lower risk tolerance contributed most to the net tightening of banks’ overall terms and conditions (see Table 11). By contrast, competitive pressure had a net easing impact. Banks’ risk perceptions contributed to the tightening in Germany, France and Italy, with German and French banks also reporting lower risk tolerance.

Chart 13

Changes in terms and conditions on consumer credit and other lending to households

(net percentages of banks reporting a tightening of terms and conditions)

4.3 Rejection rates increased further

Euro area banks reported a further net increase in the share of rejected applications for consumer credit (7%; see Chart 10 above). The net increase was the highest since the fourth quarter of 2023. It was consistent with concerns about perceived deteriorating asset quality in this loan segment (see Section 5.3) or banks’ lower risk tolerance, as described in Section 4.1 on credit standards. The net increase was observed in Germany and France, while Spanish banks reported an unchanged share and Italian banks a net decrease in the share of loan rejections.

4.4 Net demand for loans increased slightly

Banks reported a slight net increase in the demand for consumer credit and other lending to households (net percentage of banks at 2%, see Chart 14 and Overview table).^[13] The net increase in loan demand was lower than in the previous quarter (8%) and lower than had been expected by banks in the previous quarter (11%), which is broadly consistent with the recent weakening in actual lending to consumers. The net increase in loan demand was observed in Spain and, to a lesser extent, in Germany and Italy, while net demand for consumer credit decreased in France.

The increase in loan demand was primarily supported by declining interest rates (see Chart 14 and Table 12). By contrast, spending on durable goods and consumer confidence dampened loan demand slightly, which is consistent with the decline in euro area consumer confidence in November and December 2024 and the ongoing weak momentum of retail sales (even if they have edged up slightly in November). The use of alternative finance from other banks and non-banks as well as consumption expenditure financed through real-estate guaranteed loans had also a small negative impact on loan demand.

Chart 14

Changes in demand for consumer credit and other lending to households, and contributing factors

(net percentages of banks reporting an increase in demand, and contributing factors)

For the first quarter of 2025, banks expect a net increase in demand for consumer credit and other lending to households (net percentage of 12%). Demand for consumer credit is expected to increase across the four largest euro area economies.

5 Ad hoc questions

5.1 Banks’ access to funding deteriorated slightly^[14]

Euro area banks’ access to funding worsened somewhat for retail funding, money markets and debt securities (with net percentages of 3%, 3% and 2% respectively; Chart 15 and Table 13). The slight deterioration in access to retail funding reflects a worsening in both short-term and long-term retail funding. With regard to money markets, access to funding remained broadly unchanged for very short-term money markets despite the interest rate cuts, while it deteriorated for short-term money markets. Banks also reported a slight deterioration in access to debt securities.

For the first quarter of 2025, banks expect access to money markets to improve slightly and access to debt securities funding to remain broadly unchanged, while they expect a minor deterioration for retail funding.

Chart 15

Changes in banks’ access to retail and wholesale funding

(net percentages of banks reporting a deterioration in access)

5.2 Banks increased their capital in response to regulatory and supervisory requirements^[15]

In response to new regulatory or supervisory requirements in 2024, euro area banks reported a net increase in their capital requirements as well as increases in their liquid and risk-weighted assets, coupled with a net easing in banks’ funding conditions (see Chart 16 and Table 14). Replies on the impact on capital requirements are broadly in line with the 2023 SREP exercise for 2024, where CET1 capital requirements increased.^[16] Retained earnings continued to play an important role in changes in banks’ required capital position, with an increased role of capital issuance compared with 2023. Banks indicated that regulatory or supervisory measures led to an increase in banks’ total assets, with a similar impact on liquid assets and risk-weighted assets. While there were no major increases in liquidity requirements and liquidity levels generally remain well above requirements, the reported pressure to increase liquid assets could reflect the perception of heightened attention paid by regulators and supervisors to liquidity conditions in light of the 2023 banking turmoil and bank liquidity that, although still ample, is decreasing.^[17] The increase in risk-weighted assets was mainly supported by a positive contribution from average and, to a lesser extent, riskier loans. These developments are broadly consistent with the supervisory priority for 2024 of building banks’ resilience to macro-financial and geopolitical shocks, especially with regard to shortcomings in credit risk management. Banks also indicated that regulatory or supervisory measures had a moderate easing effect on their funding conditions.

Chart 16

Impact of regulatory or supervisory action on banks’ assets, capital and funding conditions

(net percentages of banks reporting an increase)

Supervisory or regulatory requirements were reported to have a net tightening impact on banks’ credit standards across all loan categories in 2024 (see Chart 17 and Table 15). The net tightening impact was higher than in 2023 across all loan categories for credit standards, and more pronounced for loans to firms. For loans to SMEs, the net tightening is the largest since the second half of 2012. Credit margins for loans to firms also experienced a net tightening stemming from regulatory or supervisory requirements, whereas credit margins for loans to households for house purchase and for consumer credit remained broadly unchanged.

Chart 17

Impact of regulatory or supervisory action on banks’ credit standards and margins

(net percentages of banks reporting a tightening impact)

Looking ahead to 2025, euro area banks expect that regulatory or supervisory requirements will increase their capital needs, liquid assets and, more markedly, their risk-weighted assets. The expected net increase in capital in 2025 is lower than it was in 2024, possibly related to the broadly stable ECB capital requirements in the SREP exercise for 2025.^[18] At the same time, the further net increase in risk-weighted assets, which is expected to be larger in 2025 than in 2024, is in line with higher perceived credit risks and may also reflect the introduction of the Capital Requirement Regulation III and the Capital Requirement Directive VI, which is binding from January 2025. Banks expect regulatory and supervisory requirements to have a further tightening impact on credit standards and credit margins for loans to SMEs and large firms. The actual net impact of supervisory and regulatory requirements on liquid assets has been consistently higher than expected by banks, at least since 2021 when expectations were first collected. This is consistent with banks’ preference, in their liquidity targets communicated to investors, for maintaining high liquidity buffers in a context of decreasing central bank reserves and volatile valuations of securities holdings. In addition, banks expect a moderate net easing impact of regulatory or supervisory requirements on funding conditions. Banks also expect that regulatory or supervisory requirements will have a larger tightening impact on credit standards and credit margins across all loan categories than they did in 2024.

5.3 Perceived risks to credit quality had a tightening impact on credit standards for firms and consumers^[19]

Euro area banks reported a net tightening impact of NPL ratios and other indicators of credit quality on their credit standards for loans to firms and consumer credit in the second half of 2024 (net percentages of 13% and 12% respectively; see Chart 18 and Table 16). The net tightening impact for firms and consumer credit was higher than in the first half of 2024, returning to net percentages seen only at the height of the pandemic in 2020 and the period of balance sheet clean-up in 2014-17. The tightening also substantially exceeded euro area banks’ expectations in the previous round (net percentages of 6% for firms and 1% for consumer credit respectively). For terms and conditions, the net tightening impact of euro area banks’ credit quality remained more moderate (7% and 6% respectively). Overall, developments for firms and consumer credit are consistent with the gradual increase in inflows into non-performing and Stage 2 (underperforming) loans in these loan segments, which is related to refinancing and repayment risks in an environment of weak economic growth and still elevated lending rates. For housing loans, credit quality had a neutral impact on both credit standards and terms and conditions, which was broadly as expected by the banks.

Chart 18

Impact of banks’ NPL ratios and other indicators of credit quality on credit standards and terms and conditions

(net percentages of banks reporting a tightening impact)

Higher perceived risks and, to a lesser extent, lower risk tolerance were the most important factors for banks reporting a tightening impact of their credit quality on lending conditions (see Chart 19 and Table 17). Pressure related to supervisory or regulatory requirements continued to have a tightening impact in the second half of 2024. In line with the generally sound capital positions of euro area banks, the tightening impact of credit quality on banks’ lending policies via banks’ capital positions and access to market financing was small, while the impact of banks’ liquidity position and the costs of balance sheet clean-up was neutral.

Chart 19

Impact of factors through which NPL ratios and other indicators of credit quality affect banks’ policies on lending to enterprises and households

(net percentages of banks reporting a tightening impact)

For the first half of 2025, euro area banks expect a further tightening impact of credit quality on their lending conditions for loans to firms and consumer credit and a broadly neutral impact on lending conditions for housing loans. The impact on credit standards and terms and conditions is expected to remain similar to the impact in the second half of 2024, for loans to both firms and households. Higher perceived risks, pressure related to supervisory or regulatory requirements and banks’ lower risk tolerance are expected to contribute most to the expected net tightening impact of credit quality. A small tightening impact of credit quality is also expected via banks’ capital position, their access to market financing and banks’ costs related to balance sheet clean-up, whereas banks expect a broadly neutral impact via their liquidity position in the first half of 2025.

5.4 Tighter credit standards and overall muted loan demand was seen across economic sectors^[20]

Banks’ credit standards tightened further in all main economic sectors in the second half of 2024. Banks reported a substantial net tightening of their credit standards for firms in the CRE, wholesale and retail trade and construction sectors as well as in the energy-intensive manufacturing sub-sector in the second half of 2024 (see Chart 20 and Table 18). The net tightening of credit standards was small in RRE, the overall manufacturing sector and the services sector. A newly available breakdown of the services sector shows that banks tightened their credit standards in the transport, accommodation and food sub-sectors, while they kept credit standards broadly unchanged in other services in the second half of 2024. Compared with credit standards, the net tightening of credit terms and conditions was relatively moderate in the CRE and construction sectors (see Chart 21 and Table 18). In addition, terms and conditions eased slightly in the services sector in the second half of 2024. Terms and conditions remained broadly unchanged in manufacturing, wholesale and retail trade and RRE. Overall, the further net tightening of credit standards in the main economic sectors in the second half of 2024 is consistent with the renewed net tightening of overall credit standards for loans to firms in the fourth quarter of 2024 after unchanged credit standards in the third quarter. It confirms the increased credit risks in various corporate segments, whereas declining interest rates have led to more moderate changes in the actual credit terms and conditions agreed in loan contracts.

For the first half of 2025, euro area banks expect a further net tightening of credit standards across most economic sectors, except for the services sector. In the manufacturing sector, banks expect the net tightening to become larger, reflecting the weak economic outlook in this sector as, for instance, reflected in the recent manufacturing output PMI (see Section 2). The net tightening is expected to remain substantial for CRE in the first half of 2025. Banks expect the net tightening of credit standards to become moderate in the construction and wholesale and retail trade sectors, and small in RRE. Banks expect a net easing of credit standards in the services sector. For credit terms and conditions, banks expect a substantial net tightening for CRE, and a small to moderate net tightening for the other main economic sectors in first half of 2025.

Chart 20

Changes in credit standards for new loans to enterprises across main economic sectors

(net percentages of banks reporting a tightening)

Chart 21

Changes in terms and conditions for new loans to enterprises across main economic sectors

(net percentages of banks reporting a tightening)

Banks reported a net decrease in demand for loans or credit lines in the CRE, construction and energy-intensive manufacturing sectors in the second half of 2024 (see Chart 22 and Table 18). Loan demand increased slightly in the services sector, owing to services other than transport, accommodation and food, and remained broadly unchanged in the overall manufacturing, wholesale and retail trade and RRE sectors.

For the first half of 2025, euro area banks expect a moderate net increase in loan demand in RRE and muted changes in demand in other sectors. Banks expect loan demand to decline further, although to a lesser extent, in CRE and construction. For manufacturing, banks also expect a net decrease in loan demand in the first half of 2025, reflecting subdued developments in this sector. In addition to the RRE sector, banks expect loan demand in the transport, accommodation and food services sector to increase slightly.

Chart 22

Changes in demand for loans or credit lines to enterprises across main economic sectors

(net percentages of banks reporting an increase)

5.5 Decrease in excess liquidity had a neutral impact on bank lending conditions^[21]

Banks reported that the decline in excess liquidity that they held with the Eurosystem in the second half of 2024 had a neutral impact on bank lending conditions (see Chart 23 and Table 19). The decline in excess liquidity held at the bank level had a slightly positive impact on lending volumes (2%) after repeatedly negative impacts until mid-2024, while it had a broadly neutral impact on credit standards and terms and conditions. With regard to the decline in aggregate excess liquidity held by other euro area banks, banks reported no impact on credit standards and lending volumes, while there was a small tightening impact on terms and conditions (2%). This evidence suggests that while the decrease in excess liquidity in the system exerts a small tightening pressure on terms and conditions, the decreases in the remuneration of banks’ own excess liquidity holdings, which started at the end of the second quarter of 2024 with the first interest rate cuts, could act in the opposite direction. Overall, the gradual and predictable pace at which changes in banks’ excess liquidity held with the Eurosystem occur contributes to keeping impacts contained overall.

Looking to the first half of 2025, banks anticipate a continuation of relatively muted impacts. Changes in excess liquidity at the bank level are expected to continue to have a small positive impact on lending volumes, while the impact of changes of the excess liquidity held by other banks is expected to be neutral.

Chart 23

Impact of changes in banks’ excess liquidity with the Eurosystem on bank lending

(net percentages of banks reporting a tightening impact or an increase)

Annexes

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