ECB: March Monetary Developments Show Slower Annual Private Sector Credit Growth

29 April 2021

By David Barwick – FRANKFURT (Econostream) – The annual growth of bank lending in the euro area slowed noticeably in March compared to February, while the growth rate of household loans sped up, according to data released by the European Central Bank on Thursday.

In its report on last month’s monetary developments, the ECB said that the annual growth rate of total credit to euro area residents decreased to 9.1% in March from 9.8% in February and 9.7% in January. The deceleration reflected decreases in the growth rate of credit extended to general government, which fell to 21.9% from the previous month’s 24.0%, and to the private sector - euro area non-MFIs excluding general government – which fell to 4.6% from the previous month’s 5.0%.

Adjusted loans to the private sector grew an annual 3.6% in March, down from 4.5%, with adjusted loans to households posting growth of 3.3%, up from 3.0%, and adjusted loans to non-financial corporations down to 5.3% after 7.0%.

Credit for consumption contracted 1.7% on the year (versus -2.8% in February), while the growth of lending for house purchase accelerated to 5.0% from 4.5%.

The weak evolution of adjusted loans to non-financial corporations could reflect further hesitancy to invest on the part of companies, whose balance sheets have been weakened by the pandemic, but the annual rate of growth still remains high after what European Central Bank President Christine Lagarde has called ‘the very strong increase in lending in the first half of’ 2020.

In the ECB’s view, household lending has held up well, though the persistence of the pandemic could change that. In any case, this lending has not been for the purpose of consumption, but rather homebuying. Consumers probably have less need to finance consumption spending via loans, given the partly involuntary build-up of savings during the pandemic.

The ECB is keen on avoiding any developments that would be inconsistent with favourable financing conditions, as these would stand in the way of a recovery, and has thus stepped up its asset buying to counter the impact of rising market rates.