ECB Says Trade Uncertainty Led Euro Area Banks to Tighten Lending Practices in 2025

Banks across the euro area adopted more cautious lending practices during 2025 as heightened trade tensions, particularly those affecting exports to the United States, increased risks for businesses, according to the European Central Bank (ECB).

The findings were 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. Their analysis combined corporate loan data with responses from the euro area bank lending survey (BLS) to examine how financial institutions adjusted their lending behaviour amid growing uncertainty surrounding international trade.

According to the ECB, lenders strengthened their oversight of borrowers considered vulnerable to trade-related disruptions and exercised greater caution when issuing new credit. These changes were most evident among banks whose loan portfolios were heavily exposed to businesses affected by international trade risks.

The ECB explained that companies engaged in global trade encountered greater uncertainty as trade policies shifted during 2025. Broad-based tariffs introduced during the year increased concerns over weaker demand, disruptions to supply chains and pressure on corporate profit margins, prompting banks to reassess the risks associated with lending to affected businesses.

The research concentrated on banks’ exposure to trade with the United States by evaluating the extent to which their corporate borrowers relied on exports to and imports from the US market.

The ECB found that euro area banks were generally more vulnerable to risks stemming from companies exporting to the United States than from firms importing American goods and services. Exposure linked to exports varied considerably across lenders. While many banks recorded moderate levels of exposure, a smaller group held significantly higher concentrations of export-related risk within their corporate lending portfolios.

By comparison, import-related risks proved more limited and were largely concentrated among banks with relatively low levels of exposure, indicating that fewer lenders faced substantial vulnerabilities connected to imports from the United States.

Survey responses also showed that approximately half of the banks participating in the euro area bank lending survey considered trade-related risks to be significant during 2025, with many expecting those risks to remain at similar levels throughout 2026.

The ECB found that banks with the greatest exposure to companies exporting to the United States reduced the supply of loans more sharply from April 2025 onwards, coinciding with the escalation of trade disputes and tariff threats.

The impact on lending conditions was most pronounced between April and October 2025. However, the tightening eased later in the year as trade sentiment improved following the preliminary US-EU trade framework agreement reached during the summer and as uncertainty surrounding future trade policies diminished.

Trade-related risks also influenced lending decisions during the second half of 2025. Some banks opted to closely monitor developments without altering their lending standards, while others introduced stricter conditions, particularly for businesses operating in sectors with significant exposure to international trade.

The ECB noted that in certain industries, including car manufacturing, tighter lending conditions arising from trade-related concerns compounded structural challenges that businesses were already facing.

According to the survey, a net 11 per cent of banks reported tightening their credit standards during 2025 because of changes in global trade policies and the uncertainty surrounding them. A similar proportion expected trade-related developments to continue influencing lending standards during 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 affected borrowing activity. A net 6 per cent of banks reported weaker corporate demand for loans during 2025, while a net 3 per cent expected loan demand to decline further in 2026.

The ECB explained that economic policy uncertainty had already weakened credit conditions, with recent trade tensions adding further pressure by simultaneously reducing companies' appetite for borrowing and encouraging banks with the greatest exposure to export-related risks to tighten lending standards.

The central bank concluded that euro area lenders had continued to adjust their long-term strategic planning and adopt more cautious lending practices in response to the risks created by heightened uncertainty in global trade.

By fLEXI tEAM