Banks in the Eurozone expect to further tighten lending conditions in the fourth quarter and forecast weaker demand amid slowing economic growth and higher interest rates, according to an ECB survey.
It seems almost certain that the Eurozone will slip into recession this winter, with expectations deteriorating sharply, meaning that banks may become more selective in approving loans, which would further deepen the decline in activity.
– In the fourth quarter of 2022, banks in the Eurozone expect a significantly more pronounced net tightening of credit standards for corporate loans – concluded the European Central Bank (ECB) based on a survey of 153 banks.
– It should be added that banks in the Eurozone expect credit standards to be further tightened for both housing and consumer loans – they determined.
Lending standards have already been tightened due to the ECB’s interest rate hikes, and higher borrowing costs have simultaneously begun to dampen demand, banks noted in the ECB survey.
– In an environment of economic slowdown and increasing fears of recession, credit standards for corporate loans have been significantly tightened due to risks associated with economic prospects, specific situations in industries or companies, and decreasing risk tolerance in banks – stated the ECB.
To curb inflation, the central monetary institution of the Eurozone has raised interest rates by 1.25 percentage points this year, and at the meeting on Thursday, it is expected to raise them again, likely by three-quarters of a percentage point. The cycle is expected to continue into 2023.
In the last three months of the year, banks simultaneously expect a decline in demand for corporate loans and a further “strong net decline” in demand for mortgage loans, they add from the ECB.
