Banks across Spain and the rest of Europe are rolling up their sleeves and loosening the purse strings, dishing out loans on better terms in a bid to stave off what many economists fear could be the next big financial storm.

As the European Central Bank (ECB) geared up for its interest rate decision on Thursday, April 17, the banking sector had already taken the hint and got the ball rolling. Many customers in Spain have recently been receiving credit card offers and even mortgage offer notifications through their banking apps. Credit is now flowing more freely, and it’s coming cheaper – all part of a push to cushion the blow from a perfect storm of sluggish growth, geopolitical instability, and trade tensions fuelled by the return of Donald Trump’s tariff tirades.

Money talks – and it’s saying ‘spend!’

Spain’s banks are among the first to act, following the ECB’s recent string of interest rate cuts aimed at breathing life into a faltering Eurozone economy. According to the Bank of Spain’s latest Bank Lending Survey, released on April 15, financial institutions have eased credit conditions across mortgages and business loans between January and March 2025.

That means lower interest rates, longer repayment terms, and more generous loan amounts – although not all credit is created equal. Consumer loans haven’t seen the same generosity, with conditions remaining largely unchanged. The Bank of Spain noted that if you’re buying a home or running a business, borrowing just got a bit less painful.

Crisis incoming?

The shift comes as storm clouds gather over the global economy. Trade tensions stoked by Trump’s tariffs have Europe bracing for impact. The European Commission predicts the duties could shave up to 0.6% off EU GDP by 2027.

But it’s not just Trump’s tariffs giving economists sleepless nights. Spain’s own Fundación de Estudios de Economía Aplicada (Fedea) has warned the crisis is already knocking at the door, with Spain ‘not prepared to face it’ due to structural weaknesses and persistent budget deficits.

The broader economic backdrop isn’t exactly cheery. The war in Ukraine has already weighed heavily on EU growth, prompting the ECB to launch its current expansionary policy – a cycle of rate cuts aimed at encouraging spending and investment, even as inflation fears linger in the background.

House party: Mortgages on the rise

So far, the policy seems to be working. Demand for credit has risen across the board for the fourth quarter running, led by a surge in mortgage applications. Businesses also sought more funding, mainly to invest in fixed assets, though their appetite for loans was less ravenous than homeowners. Consumer borrowing ticked up slightly.

Financial institutions chalked up this rising demand to – you guessed it – lower interest rates. In the housing market, borrowers also appeared motivated by favourable expectations around property prices.

Looking ahead, banks anticipate more of the same in the second quarter: steady lending criteria and growing demand.

No panic on bad debts – yet

Interestingly, despite the uptick in lending, banks report that bad loans haven’t put a dent in their credit strategies. And they don’t expect them to, at least not in the coming quarter.

For now, it’s all systems go. Banks are playing their part, the ECB is on the offensive, and borrowers are enjoying a rare window of opportunity. The question is: how long can this balancing act last?

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