Trade uncertainty prompted cautious credit practices among euro area banks

The European Central Bank (ECB) said banks across the euro area tightened lending conditions in 2025 as trade tensions, particularly those linked to exports to the United States, increased risks for businesses. The findings, published in an ECB blog post by economists Anastasia Allayioti, Alessandro Ferrari, Petra Köhler-Ulbrich and Matías Lamas Rodríguez, together with research analyst Wouter Wakker, examined corporate loan data and bank survey responses to assess how lenders reacted to growing trade uncertainty. Banks increased monitoring of vulnerable borrowers and became more cautious when extending credit, with the strongest adjustments seen among lenders most exposed to companies affected by trade risks. The ECB said firms involved in international trade faced greater uncertainty due to changing trade policies, including the broad-based tariffs imposed in 2025, which created risks from weaker demand, supply disruptions and pressure on profit margins. The analysis focused on banks’ exposure to trade with the United States, measuring how dependent their corporate borrowers were on exports to and imports from the country. The ECB found that euro area banks generally faced greater risks from companies exporting to the United States than from firms importing US goods and services. Export-related exposure varied significantly between banks, with many lenders facing moderate risks while a smaller number had much higher exposure through their loan portfolios. Import-related risks were more limited and were concentrated among banks with lower levels of exposure, suggesting fewer lenders faced significant vulnerabilities from US imports. Around half of the banks surveyed through the euro area bank lending survey (BLS) said trade risks were important in 2025 and expected similar levels of exposure in 2026. The ECB found that banks with the highest exposure to companies exporting to the United States reduced loan supply the most from April 2025 onwards, when trade disputes and tariff threats intensified. The impact on lending was strongest between April and October 2025, before easing later in the year as trade sentiment improved following the preliminary US-EU trade framework agreement reached during the summer and as uncertainty over future policies declined. Trade risks also affected banks’ lending decisions, with several lenders reporting changes in their approach during the second half of 2025. Some banks chose to monitor developments closely without changing lending standards, while others tightened conditions, especially for companies operating in sectors heavily exposed to international trade risks. In some industries, including car manufacturing, trade-related tightening added to existing structural challenges facing businesses. A net 11 per cent of banks reported stricter credit standards in 2025 because of changes in global trade policies and related uncertainty, with a similar impact expected in 2026. The ECB said these decisions reflected lower risk tolerance and concerns about credit quality, despite banks continuing to maintain strong balance sheets overall. Trade tensions also reduced demand for loans from companies, with a net 6 per cent of banks reporting weaker loan demand in 2025, while a net 3 per cent expected the decline to continue in 2026. The ECB explained that economic policy uncertainty had weakened credit conditions, with recent trade tensions adding further pressure by both reducing demand for loans and encouraging banks most exposed to export risks to tighten lending. The central bank said euro area lenders had continued to adjust their strategic planning and adopt more cautious lending practices in response to trade-related risks.