Eurozone banks continue to tighten credit standards
Banks across Europe continued to tighten credit standards in the third quarter while demand for borrowing fell more than expected, according to a European Central Bank survey.
In the three months to the end of September, banks tightened their standards for granting a loan to both companies and households. This was driven not just by the current economic conditions but also by the steady interest rate hikes implemented by the ECB.
According to the quarterly bank lending survey the pace of tightening for housing loans picked up, while it moderated slightly for consumer credit and other lending.
Banks reported a net increase in the share of rejected applications across all loan segments.
There was a substantial net decrease in demand from firms for loans or credit lines over the period as well as a decrease in housing loans and consumer credit. Banks expect a further net decline in the fourth quarter across all categories.
Bert Colijn, senior economist at ING, commented: “Today’s data releases for the eurozone have been dovish ahead of the ECB governing council meeting. Rates are expected to remain on hold, which will not be changed by today’s data, but the outlook is turning on the back of the ECB bank lending survey and the PMI.
“Further weakening in economic activity, slowing inflation and declining bank lending all point to easing pressure on the ECB as policy is clearly having the desired effect. The risk of doing too much therefore will feature more prominently in the ECB debate in the months ahead.”
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The survey also showed that banks found it more difficult to access funding, especially from retail customers.
“The pronounced deterioration in access to retail funding − especially short-term funding – reflects increasing competition for liquidity stemming from other banks and alternative investment opportunities offering higher remuneration,” the ECB noted.
It added: “While banks reported a positive effect on their overall profitability, there was a substantial increase in the share of banks reporting a negative impact of ECB interest rate decisions on lending volumes, consistent with the significant weakening in lending dynamics.”
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