FRANKFURT, Feb 3 - Euro zone banks moved to tighten lending to companies in the most recent quarter and anticipate further constraint on business credit in the near term, according to the European Central Bank's latest Bank Lending Survey. The ECB based its findings on responses from 153 of the region's largest banks.
While lending to both businesses and households has been expanding for several years, that growth still lags behind pre-pandemic rates. The ECB said this pattern contributes to a picture of the euro-area recovery that is resilient but modest in pace.
Conditions and causes
"Concerns about the outlook for firms and the broader economy, as well as banks’ lower risk tolerance, contributed to tighter credit standards," the ECB said, summarizing respondents' reasoning. Around half of the banks surveyed reported that uncertainty over trade policy had affected their lending practices. The ECB noted those effects operated mainly through reduced risk appetite at banks and weaker loan demand from borrowers, and that both channels are expected to continue to influence lending this year.
Country and product differences
The survey found the tightening of corporate credit was most pronounced in Germany and France, two of the euro zone's largest economies. By contrast, banks in Italy and Spain did not report an increase in restrictiveness for business lending.
Despite the pullback on corporate credit, banks continued to ease lending standards for residential mortgages, a trend driven largely by lenders in France. The ECB cautioned, however, that part of this relaxation could be reversed in the first quarter.
Demand trends and sector outlook
Demand for loans held up overall, with banks indicating a small increase that is expected to persist into the first quarter. On a sector basis, banks forecast rising loan demand in most areas but singled out several exceptions where demand is expected to weaken or not grow: car manufacturing, wholesale and retail trade, and commercial real estate.
Mortgage borrowing also strengthened, supported by what lenders described as improved housing market prospects, even as consumer confidence exerted a negative influence on household sentiment.
Implications
- Corporate borrowers in Germany and France face tighter credit conditions compared with counterparts in Italy and Spain.
- Mortgage markets have seen easier standards, mainly in France, though that easing may be at risk of reversal in the short term.
- Sectoral loan demand diverges, with expected declines or stagnation in autos, wholesale/retail trade and commercial real estate.