FRANKFURT — Banks operating across the euro zone pulled back on lending during the second quarter of this year, citing concerns over geopolitical instability, and they anticipate making credit even harder to obtain in the months ahead, according to the European Central Bank’s quarterly Bank Lending Survey released Tuesday.
The survey, which plays an important role in shaping ECB policy decisions, found that although demand for business loans went up, banks rejected a higher proportion of loan applications than before. The tightest lending restrictions were seen in sectors like the automobile industry and energy-intensive manufacturing, the ECB noted.
The findings broadly align with the ECB’s established position that the Iran war will modestly slow economic growth across the 21-nation euro zone. Because the bloc is a significant energy exporter, any spike in oil prices tends to hurt consumer spending and cut into manufacturing profits.
The ECB described the reasoning behind the tightening: “Perceived risks to the economic outlook and banks’ lower risk tolerance remained the main factors contributing to the tightening, as banks remain highly attentive to risks related to geopolitical and energy developments.”
Looking ahead, the central bank added: “For the third quarter of 2026, banks expect credit standards to tighten further across all loan categories,” based on responses from the bloc’s 159 largest financial institutions.
The ECB is widely expected to leave interest rates unchanged later this week. Economic growth remains sluggish, but many analysts still see a rate increase in September as the most likely outcome, given that the energy price surge tied to the Iran war has pushed inflation to roughly 3% — well above the ECB’s 2% target.
The survey also found that demand for home loans dropped sharply during the second quarter, and banks are forecasting that trend to continue in the near term.
(Reporting by Balazs Koranyi, Editing by Timothy Heritage)
