ECB: Worst credit crunch since 2023, decline also expected in Q2

Strong credit crunch for businesses and households: banks in the euro area continued to tighten conditions for all types of loans in the first quarter of the year. This is the strongest tightening since the third quarter of 2023 and is worse than expected. This is what emerges from the ECB's regular survey of loans provided by the banking system in the euro area.

For the second quarter, institutions expect a further and more widespread tightening of standards, both for business and for mortgages, as well as a new tightening of consumer credit, also due to higher financing costs.

The tightening is due to the worsening and uncertainty in the economic environment of geopolitical tensions, the increasing perceived risks and a lower risk appetite of banks. Prudence in granting bank credit is increasing. The banks surveyed in the survey also cited energy trends as a major factor, with pressures also related to exposure to energy-intensive companies and the Middle East region. Another factor that has contributed to the tightening of credit conditions is the worsening financing conditions for the banks themselves, which finance themselves on the markets.

For loans to businesses there was a net tightening of 10%, higher than expected (6%) and at historical average levels, the most marked since Q3 2023 and part of a tightening trend in place since mid-2025. Loans to households also saw tightening conditions: slight tightening for home loans (2%) and more significant for consumer credit (15%).

At the same time, the share of rejected loan applications increased, particularly in consumer credit. Demand for loans is expected to fall, both from businesses - due to lower investments - and from households, penalised by weaker confidence and lower purchases of durable goods.