Eurozone Banks Tighten Lending as Geopolitical Risks Persist

The European Central Bank's latest lending survey shows that eurozone banks are maintaining stricter lending standards due to persistent geopolitical risks and economic uncertainty.

Although the pace of credit tightening slowed in the second quarter compared to the previous quarter, banks remained cautious over lending, keeping standards tight as they closely monitor credit risks. The outcome of US-Iran negotiations continues to be a source of uncertainty, with banks revising their assessments as talks evolve.

Banks reported a slight increase in demand for corporate loans, driven by financing needs for inventories, working capital, and fixed investment by larger firms. However, elevated geopolitical risks, lower risk tolerance, and concerns over borrowers' creditworthiness continue to weigh on lending decisions.

Credit standards for corporate lending tightened moderately, with a net 7% of banks tightening lending standards, down from 10% in the first quarter. Banks expect credit standards to tighten further in the third quarter of 2026.