Reuters,
Frankfurt, Germany According to a European Central Bank survey released on
Tuesday, banks in the euro zone curtailed lending to businesses last quarter
and anticipate doing so again in the first three months of 2025, supporting the
argument for additional interest rate reduction as the economy slows.
Due to sluggish consumption, a two-year industrial slowdown, low export demand, and slack government investment, the long-awaited economic recovery has not materialised, and lending growth has remained essentially static for the majority of 2024.
Despite generally poor demand, banks went above and beyond what was anticipated of them in tightening credit standards or loan acceptance conditions for businesses, according to the European Central Bank's quarterly Lending Survey, which was a major factor in Thursday's interest rate decision.
"It was driven by higher perceived risks related to the economic outlook, the industry-and-firm specific situation and banks’ lower risk tolerance," the European Central Bank stated.
All industries saw a tightening of credit requirements, although the bank noted that commercial real estate, wholesale and retail trade, construction, and energy-intensive industry were most affected.
When the ECB questioned banks three months ago, they projected "strong" easing, thus it is disappointing that credit requirements for mortgages remained mostly intact.
Banks anticipate tightening credit requirements for businesses and households in the current quarter, indicating that loan growth will continue to be poor.
Since excessive inflation has mostly been conquered and focus has switched to weak growth, the ECB reduced interest rates four times last year and is expected to make four more cuts in 2025. The first of those cuts is scheduled for Thursday.
Banks anticipate that loan demand for consumers will rise further and for businesses will remain largely unchanged in the current quarter, particularly for housing loans, while they anticipate that their own access to credit will remain largely unchanged.
Due to sluggish consumption, a two-year industrial slowdown, low export demand, and slack government investment, the long-awaited economic recovery has not materialised, and lending growth has remained essentially static for the majority of 2024.
Despite generally poor demand, banks went above and beyond what was anticipated of them in tightening credit standards or loan acceptance conditions for businesses, according to the European Central Bank's quarterly Lending Survey, which was a major factor in Thursday's interest rate decision.
"It was driven by higher perceived risks related to the economic outlook, the industry-and-firm specific situation and banks’ lower risk tolerance," the European Central Bank stated.
All industries saw a tightening of credit requirements, although the bank noted that commercial real estate, wholesale and retail trade, construction, and energy-intensive industry were most affected.
When the ECB questioned banks three months ago, they projected "strong" easing, thus it is disappointing that credit requirements for mortgages remained mostly intact.
Banks anticipate tightening credit requirements for businesses and households in the current quarter, indicating that loan growth will continue to be poor.
Since excessive inflation has mostly been conquered and focus has switched to weak growth, the ECB reduced interest rates four times last year and is expected to make four more cuts in 2025. The first of those cuts is scheduled for Thursday.
Banks anticipate that loan demand for consumers will rise further and for businesses will remain largely unchanged in the current quarter, particularly for housing loans, while they anticipate that their own access to credit will remain largely unchanged.
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