July 19, 2022

  • Credit standards have tightened for businesses and households as uncertainty remains elevated and monetary policy becomes less accommodative
  • Business loan demand continued to grow, driven by working capital needs
  • Banks report deteriorating access to wholesale funding

According to the July 2022 Eurozone Bank Credit Survey (BLS), credit standards – i.e. banks’ internal guidelines or loan approval criteria – for loans or lines of credit to companies tightened further considerably (net percentage of banks amounting to 16%, see chart 1 ) in the second quarter of 2022. With regard to housing loans granted to households, euro area banks reported a large net tightening of credit standards (net percentage of 24%), while credit standards for consumer credit and other loans to households tightened slightly (net percentage of 24% ). percentage of 9%). In an environment of high uncertainty, continued supply chain disruptions, and high energy and input prices, banks cite perceptions of increased risk and lower risk tolerance as contributing factors. the origin of the sharp tightening of credit standards for companies. As monetary policy becomes less accommodative, eurozone banks have also reported that their funding costs and balance sheet constraints have contributed to tighter lending standards for businesses and households. For the third quarter of 2022, they expect a net tightening of corporate credit standards of a similar magnitude to that of the second quarter (18%). In addition, eurozone banks expect lending standards to continue to tighten for both home loans (24%) and consumer credit (13%).

Banks’ terms and conditions – i.e. the actual terms agreed in loan contracts – tightened for corporate loans and household loans in the second quarter of 2022. For corporate loans, this tightened. explained mainly by a considerable widening of spreads on riskier loans, while spreads on average loans widened more moderately. Despite the sharp tightening of general conditions, spreads on home loans and on consumer credit have tightened, partly reflecting the fact that market benchmark rates relevant to banks’ funding costs have risen more than interest rates on loans to households.

Banks reported, overall, an increase in demand for corporate loans or credit line drawdowns in the second quarter of 2022 (see Chart 2). Loan demand continued to be driven by corporate financing needs for working capital, which is likely related to rising energy and commodity prices amid continued supply chain disruptions supply. Fixed investment has had a moderating effect on companies’ net loan demand, indicating that they may postpone their investments in the current uncertain environment. Moreover, the positive contribution of the general level of interest rates to the demand for loans was more moderate compared to the previous quarter. In the second quarter of 2022, net demand for loans for housing declined after increasing in the first quarter, while demand for consumer credit and other loans to households continued to increase in net terms. The net decrease in demand for housing loans was mainly explained by the decline in consumer confidence and the general level of interest rates, while the increase in demand for consumer credit was mainly driven by spending on durable goods. For the third quarter of 2022, banks expect a sharp decline in demand for corporate loans, a sharp net decline in demand for housing loans and consumer credit demand broadly unchanged.

According to the banks surveyed, access to money markets, securitization and in particular debt securities deteriorated, in net terms, in the second quarter of 2022, reflecting the tightening of financial market conditions for banks. By contrast, access to retail finance improved slightly over the same period. In the first half of 2022, non-performing loan ratios of euro area banks had a slight net tightening on corporate lending standards, but no impact was reported on housing loans and credits consumer or other loans. In most major economic sectors, euro area banks reported a more pronounced net tightening of credit standards for new corporate loans. They also reported a net increase in demand for loans or lines of credit across all major economic sectors, consistent with the overall reported increase in business loan demand in the first and second quarters of 2022.

The euro area bank credit survey, conducted four times a year, was developed by the Eurosystem to improve its understanding of the credit behavior of banks in the euro area. Results reported in the July 2022 survey are for changes observed in the second quarter of 2022 and expected changes in the third quarter of 2022, unless otherwise stated. The July 2022 survey was conducted between June 10 and June 28, 2022. A total of 153 banks were interviewed in this survey, with a response rate of 100%.

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Remarks

  • A report on this investigation is available on the ECB’s website. A copy of the quiz, a glossary of BLS terms, and a BLS user’s guide with information about BLS series keys can be found on the same web page.
  • Euro area and national data series are available on the ECB’s website via the statistical data warehouse. National results, as published by the respective national central banks, can be obtained via the ECB’s website.
  • For more detailed information on the bank lending survey, see Köhler-Ulbrich, P., Hempell, H. and Scopel, S., “The euro area bank lending survey”, Occasional Paper SeriesNo. 179, ECB, 2016.

Chart 1

Changes in credit standards for business loans or lines of credit, and contributing factors

(net percentages of banks reporting tighter credit standards and contributing factors)

Source: ECB (BLS).

Notes: Net percentages are defined as the difference between the sum of the percentages of banks responding “considerably tightened” and “somewhat tightened” and the sum of the percentages of banks responding “somewhat eased” and “considerably relaxed”. Net percentages for “other factors” refer to other factors that were cited by banks as having contributed to changes in lending standards.

Chart 2

Changes in demand for business loans or lines of credit and contributing factors

(net percentages of banks reporting increased demand and contributing factors)

Source: ECB (BLS).

Notes: Net percentages for loan demand questions are defined as the difference between the sum of the percentages of banks responding “greatly increased” and “increased somewhat” and the sum of the percentages of banks responding “somewhat decreased” and “decreased”. considerably”.