ECB: Net Tightening in Loans to Firms Expected in 2H2024

16 July 2024

By Isabel Teles – FRANKFURT (Econostream) – The European Central Bank’s latest Bank Lending Survey (BLS), released on Tuesday, showed further tightening in 1H of credit standards for loans to enterprises, and that euro area banks continued to expect a net tightening in lending conditions for the remainder of the year.

‘Credit standards for firms tightened further in all economic sectors in the first half of 2024, ranging from a very small net tightening in services and manufacturing to a relatively large net tightening in commercial real estate’, the ECB said in a press release. ‘In the second half of 2024 euro area banks expect a net tightening in lending conditions, combined with a moderate net increase in loan demand, in most economic sectors.’

In 2Q, banks reported a moderate net easing of credit standards for loans to households for house purchases – which was attributed to competition – and a moderate further tightening in overall conditions to households, the survey showed.

While credit standards for loans to households were expected to remain unchanged, banks expected a moderate net tightening for loans to firms in the third quarter, the survey said.

For the first time since 2022, the demand for housing loans and for consumer credit and other lending to households increased, the survey noted.

The demand from firms declined in the second quarter of 2024, the BLS showed, but for the third quarter, banks expected net demand to increase across all loan segments.

‘Higher interest rates and lower fixed investment continued to exert dampening pressure on loan demand from firms’, the ECB said. ‘At the same time, improving housing market prospects, consumer confidence and spending on durables positively supported demand from households.’

Access to funding was expected to deteriorate across all segments over the third quarter of 2024, according to the survey.

‘Perceived credit risk in banks’ loan portfolios had a moderate tightening impact on bank lending conditions for loans to enterprises and consumer credit in the first half of 2024. The impact was neutral for housing loans. Banks expect the same for the remainder of the year’, the ECB said.

The decline in excess liquidity held with the Eurosystem had a small tightening effect on bank lending conditions, according to the survey, and banks expect similar effects in the second half of the year.

For the July 2024 BLS, 157 banks were surveyed.