Euro area banks already tightening lending

Euro area banks tightened their credit standards for loans or credit lines in the third quarter of 2022, noted the latest lending survey of the European Central Bank (ECB). he survey was conducted among a total of 153 banks between 16 September and 4 October 2022. Most of the financial institutions said that they have further tightened their credit standards for loans or credit lines to enterprises. A small number of banks said they are easing lending. 

Considerable tightening impact on credit standards had an  economic slowdown and intensifying recession fears, risks related to the economic outlook, industry or firm-specific situation and banks’ declining risk tolerance.  Banks’ cost of funds and balance sheet situation also had a tightening impact on credit standards. In the fourth quarter of 2022 banks expect a significantly stronger net tightening for credit standards on loans to firms.

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Firms’ net demand for loans continued to increase in the third quarter of 2022, despite banks’ expectations of a moderate net decline in the previous quarter. Loan demand continued to be driven by firms’ financing needs for working capital and inventories, in the context of inflated production costs, growing inventories due to the slowdown in demand and possible supply bottlenecks. In the fourth quarter of 2022 banks expect a slight decline in loan demand and net tightening of credit standards both for mortgage and consumer loans. 

In the third quarter of 2022 net demand for loans to households for house purchase decreased with 42% – the largest decrease since the first quarter of 2012, excluding the pandemic period. Demand for consumer credit decreased moderately in net terms after five consecutive quarters of increases in demand. The decrease was mainly driven by the general level of interest rates, consumer confidence and housing market prospects.

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