The latest survey from the European Central Bank indicates that banks in the Eurozone tightened their standards for corporate loans during the second quarter, though the pace of this tightening has moderated compared to the previous period.

The quarterly Bank Lending Survey, released on Tuesday, shows that Eurozone financial institutions further restricted their lending criteria for businesses in Q2. This trend, influenced by economic conditions related to geopolitical tensions, continued but at a slower rate than in the first quarter and was less severe than banks had initially forecast at the start of the year.

The survey, which includes responses from 159 banks, noted that ongoing uncertainty in international relations has led institutions to reassess risk, with a continued focus on monitoring credit conditions in higher-risk sectors. Banks in Germany, Spain, and France reported a net tightening of standards, while Italian banks reported a slight easing.

Looking ahead to the third quarter, banks generally expect lending standards to continue tightening, albeit at a more moderate pace.

Concurrently, demand for corporate loans in the Eurozone showed a slight increase in the second quarter, with expectations for a modest rise in demand to continue into Q3.

The survey findings provide key inputs for monetary policy decisions. The European Central Bank raised its key interest rates by 25 basis points in June. With current inflation remaining above the central bank's target, market expectations are leaning towards another potential rate hike later this year, though the central bank may also consider maintaining current rates to manage the risk of persistent inflation driven by energy costs.