ECB: Lending Conditions Expected to Tighten Further in 1Q

23 January 2024

By Isabel Teles – FRANKFURT (Econostream) – The European Central Bank’s latest Bank Lending Survey (BLS), released on Tuesday, showed that credit standards for loans to enterprises and households were tighter in the fourth quarter of 2023 and were expected to tighten further in the first quarter of 2024.

‘Risk perceptions were a major driver of the tightening of credit standards for loans to firms and households, with lower risk tolerance also driving the tightening of credit standards for consumer credit’, the ECB said in a press release.

In the last quarter of 2023, there was a moderation in the net percentage of banks reporting tightening across the three loan categories and the figure was below the historical average for housing loans and loans to firms, the survey reported.

The net percentage of banks reporting a decrease in demand for three loan categories was also down in the last quarter, and for the first time in two years, euro area banks expected a small net increase in the demand for loans to firms and for housing loans in the first quarter of 2024, according to the survey.

‘Across loan categories, the decline in demand was driven by the general level of interest rates’, the survey reported.

Real estate and construction registered stricter bank lending conditions than other sectors, according to the BLS.

‘Lending conditions for firms tightened moderately further in most economic sectors in the second half of 2023, ranging from almost no net tightening in services to relatively large net tightening in the commercial real estate, construction and residential real estate sectors. Loan demand decreased in net terms across sectors, especially in real estate and construction’, the BLS reported.

Access to funding improved to some extent for money markets, long-term deposits and debt securities in the fourth quarter of 2023, according to the banks surveyed, while access to short-term retail funding and securitisation tightened marginally.

‘Perceived credit risks in banks’ loan portfolios had a moderate tightening impact on credit standards for loans to enterprises and consumer credit in the second half of 2023, while the impact was neutral for housing loans’, the survey reported.

For the January 2024 BLS, 157 banks were surveyed about the changes observed during the last quarter of 2023 and expected in the first quarter of 2024.