The European Central Bank’s quarterly financial institution lending survey printed on Tuesday (25 July) exhibits a bleak view of financial exercise within the coming months.
Corporate-loan demand has fallen by 42 p.c within the second quarter of this 12 months, following a 38 p.c drop within the first quarter, falling to an all-time low because the begin of the survey in 2003. This 12 months the survey coated 158 business banks.
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“The lower was once more considerably stronger than anticipated by banks,” the ECB reported, in an indication that the steepest curiosity rate hikes within the financial institution’s historical past is slowing down financial exercise within the 20-country eurozone.
By decreasing lending, the ECB hopes to return to its two p.c inflation rate goal with out derailing the economic system.
But the survey “doesn’t present an optimistic view,” Bart Colijn, a senior economist on the ING financial institution, wrote in a press launch following the publication of the survey.
Perceived threat is pushing banks to cut back lending throughout the board. Loans to small and medium-sized companies have particularly fallen off and are actually decrease than in the course of the depths of the 2008 monetary disaster. Figures are solely barely higher for big corporations.
Eurozone banks additionally reported a major drop in residential and business actual property loans, of minus 41 and 42 p.c respectively, and an extra decline is predicted later within the 12 months.
Furthermore, borrowing prices are anticipated to rise additional later this week because the ECB is posed to increase its major curiosity rate by one other 0.25 factors, to 3.75 p.c on Thursday.
Banks additionally mentioned their inventory of dangerous non-performing loans pushed them to lend much less.
In a May report, the EU Court of Auditors criticised the ECB for insufficiently pushing business banks to cut back dangerous loans.
But on Thursday, the ECB reported that the upper perceived threat induced banks to lend much less and doesn’t signify a rise in defaults.
Climate Risk
The ECB survey additionally included local weather threat impression on lending for the primary time.
Over the previous twelve months, banks had been much less doubtless to lend to polluting ‘brown’ corporations due to perceived local weather threat publicity, whereas credit score requirements and phrases and situations on loans had been much less stringent for inexperienced corporations.
Eurozone banks additionally indicated that demand for loans was up for inexperienced corporations, whereas it had fallen for polluting corporations.
