Skyline von Frankfurt mit Banken (freepiks, frimufilms)
Frankfurt am Main – Banks’ credit standards have tightened – for both individuals and companies. According to the quarterly survey on bank lending in the euro area, institutions applied stricter guidelines and criteria for approving loans in the third quarter of 2022 than before. The demand for credit on the part of households has decreased, while it has increased on the part of businesses. This is what emerges from the report published on Tuesday European Central Bank (ECB) out.
Economic outlook and monetary policy: these two factors currently have the greatest influence on credit standards. With recession fears, banks’ risk tolerance is waning. At the same time, rising interest rates have worsened their balance sheet and borrowing costs have increased.
Further tightening in the fourth quarter
The overall conditions, or the conditions agreed in the loan agreements, worsened in the third quarter of 2022 for both businesses and individuals.
For the time being, no improvement is in sight: euro area banks expect a net tightening of standards for corporate lending in the fourth quarter of 2022. Lending standards will also tighten for housing and lending consumer, lenders estimate.
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Businesses need funding
According to the survey, the demand for business loans increased in the third quarter, as did the utilization of credit lines. The demand for credit was mainly driven by the financing needs of companies for working capital and growing inventories.
The background is rising production costs, falling demand and the accumulation of storage reserves. In the fourth quarter, banks expect a decline in demand for business loans.
According to the ECB, the decline in household loan demand in the third quarter was the result of the level of interest rates and the decline in consumer confidence.
The survey confirms the credit constraints
According to the interviewed banks, the actions of the ECB in the course of the normalization of monetary policy are having a noticeable effect. They report negative effects on their cash position, market financing conditions and profitability.
The credit survey in the euro area is conducted four times a year. Yesterday, the Munich ifo institute reported the highest credit barriers for German companies since 2017.
